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Author: 


Stevens,  William  Harrison 
Spring 

Title: 

Unfair  competition 


Place: 


Chicago 


Date: 


[1917] 


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Stevens,  William  Harrison  Spring,  1885- 

Unfair  competition;  a  f?tufly  of  certain  practices,  witli 
some  reference  to  tlie  trust  problem  in  the  United  States 
of  America,  by  William  H.  S.  Stevens  ...  Chicago,  TIL, 
The  University  of  Chicago  press  [1917] 

xiii,  265  p.    20*™. 


1. Competition,  Unfair.    2.  Trusts,  Industrial. 

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UNFAIR  COMPETITION 


UNFAIR 
COMPETITION 

A  Study  of  Certain  Practices 

With  Some  Reference  to  the  Trust  Problem 
IN  the  United  States  of  America 


THE  UNIVEB8ITY  OP  OHIOAGO  PBES8 
OmOAGO,  ILLINOIS 


B0ent0 

THl  BAUR  A  TATLOR  OOMPAmr 

■>W  TOBB 

rai  cDNnnroHAM,  curtiss  a  wilch  oompakt 

uttAMonn 

THB  CAMBRIDOE  UNIVERSITT  PRffiS 
uuiDoa  Am>  ■smuBAK 

THl  MARUZKN-KABUSmXI-KAISHA 
••■■*»  o«A«A,  ROTO,  nncuoKA,  amsAi 

THK  MISSION  BOOK  OOMPAHT 

aHA««HAI 


lARLW.  HIEBaniAm 


WILLIAM  H.  S.  STEVENS,  PH.D. 

Sometime  Professor  of  Business  Management  m  the 
Tulane  University  of  Louisiana 

Editor,  Industrial  Ccmbinationt  and  Truttt 


SCHOOL  OF  BUSINESwS 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


"my^gmJ'^k        \        %^, 


ComiOBT  tgi7  Bt 
Thz  UmvKxsrTY  or  Chicago 


AQ  Rights  Reserved 


Published  March  19x7 


TO 

Professor  James  C.  Egbert 

ov 

Columbia  University 

with  pleasant  recollections  of  my  experience  in 
administrative  work  as  his  subordinate 


<■■■ 


cL  J- 


5  .(J 


V 


Composed  and  Printtd  By 

The  University  of  Chicago 

CUcaco.  Illinois.  U^A. 


PREFACE 

This  little  volume  owes  its  inception  to  Pro- 
fessor E.  S.  Mead,  of  the  University  of  Pennsyl- 
vania.   During   the  academic  year   1911-12, 
while  teaching  and  studying  at  the  Wharton 
School,  it  was  my  privilege  to  be  one  of  the 
two  students  in  a  seminar  on  trusts  and  com- 
binations conducted  by  Professor  Mead.    One 
of  the  topics  assigned  to  me  in  the  coiu-se  of  the 
year  was  unfair  competition,  and  a  number 
of  antitrust  petitions  contained  in  Professor 
Mead's  personal  library,  together  with  some 
two  or  three  records  in  antitrust  suits,  sup- 
plied the  data  for  my  report.     During  the  latter 
part  of  the  same  academic  year,  in  connection 
with  the  editing  of  my  Industrial  Combinations 
and  Trusts,  I  collected  further  material  illus- 
trating   unfair    competitive    practices,    some 
examples  of  which  I  embodied  in  that  volume 
in  the  chapter  on  trust  methods. 

For  something  over  a  year  I  did  nothing 
further  in  connection  with  the  subject  of  unfair 
competition  except  occasionally  to  add  to  the 
data  which  I  already  possessed  relating  to  this 

vu 


•  •• 

vm 


Preface 


topic.  Impressed  with  the  necessity  of  the 
prohibition  and  elimination  of  these  methods 
and  practices,  however,  I  began,  in  the  fall  of 
1913,  a  study  of  this  subject,  which  was  com- 
pleted early  in  the  year  1914.  This  study, 
declined  by  one  economic  periodical,  was  finally 
published  by  the  Political  Science  Quarterly, 
having  been  divided  into  two  articles,  of  which 
the  first  appeared  in  June  and  the  second  in 
September,  1914,  In  these  two  articles  I 
pleaded  the  necessity  of  the  prohibition  of 
unfair  competition  and  expressed  the  view  that 
no  satisfactory  solution  of  the  trust  problem 
could  be  arrived  at  without  the  eUmination  of 
practices  of  this  character. 

These  two  articles,  appearing  at  about  the 
time  that  the  unfau--competition  section  of  the 
Trade  Conmiission  Act  was  under  discussion, 
figured  somewhat  in  the  congressional  debates 
and,  I  am  glad  to  say,  seem  to  have  been  of 
some  sUght  assistance  in  causing  the  retention 
of  that  section  in  the  law  which  was  ultimately 
passed. 

Within  the  months  following  the  publica- 
tion of  these  articles  by  the  Political  Science 
Quarterly  I  obtained  a  considerable  amount 
of  material  which  I  had  been  unable  previously 
to  secure.    This  led  to  a  decision  to  revise  and 


Preface 


IX 


enlarge  the  articles  and  to  publish  the  same  in 
book  form,  on  the  theory  that  a  more  or  less 
complete  discussion  of  the  entire  subject  from 
an  economic  point  of  view  might  prove  valuable 
to  many  persons  if  it  were  available  outside 
the  economic  periodicals.  In  the  course  of  the 
revision  the  major  portion  of  the  original 
articles  was  entirely  rewritten,  and  numerous 
additions  were  made,  so  that  in  its  present 
form  the  study  is  more  than  twice  its  original 
size.  It  may,  I  hope,  justify  itself  by  proving 
of  both  interest  and  value  to  a  number  of 
readers. 

Certain  points,  however,  shoidd  be  held  in 
mind  in  perusing  the  volume.  So  far  as  pos- 
sible the  work  has  utilized  actual  testimony 
in  illustrating  various  methods.  A  consider- 
able proportion  of  this  testimony  is  from  court 
proceedings  and  was  given  imder  oath.  At 
the  same  time  it  should  be  remembered  that 
even  sworn  testimony  must  be  utilized  with 
discrimination  and  that  in  some  cases  it  may 
not  be  entirely  accurate.  Whenever  possible 
the  writer  has  noted  other  testimony  tending 
to  prove  either  the  truth  or  the  reverse  of  the 
testimony  quoted  or  cited.  All  statements 
based  upon  petitions,  indictments,  briefs,  etc. 
(except  when  reproducing  testimony,  exhibits, 


Preface 

or  other  data),  are  necessarily  founded  merely 
upon  allegations. 

I  wish  to  acknowledge  the  courtesy  of  the 
Political  Science  Quarterly  in  permitting  the 
utilization  in  this  volume  of  my  original  articles 
on  this  subject.    The  same  acknowledgment 
is  due  to  The  Annals  for  the  privilege  of  using 
material    from    an    article    entitled    "Unfair 
Methods  of  Competition  and  Their  Preven- 
tion," which  appeared  in  January,  1916.    I 
also  wish  to  express  the  obligation  I  am  under 
to  Mr.  O.  J.  Field,  former  chief  clerk  of  the 
Department  of  Justice,  and  especially  to  Mr. 
C.  E.  Stewart,  the  present  chief  clerk,  for  then- 
courtesy  in  assisting  me  in  every  possible  way. 
Both  of  these  gentlemen  have  given  much  tune 
to  the  answering  of  my  numerous  requests 
for  information  during  the  last  four  or  five  years 
and  have  placed  at  my  disposal  material  which 
it  would  have  been  next  to  impossible  otherwise 
to  have  obtained. 

I  also  desire  to  express  my  sense  of  obliga- 
tion to  WiUiam  T.  Chantland,  M.  Q.  Mac- 
donald,  A.  F.  Busick,  Frank  Jones,  and  H.  V. 
Amberg,  of  the  staflF  of  the  Federal  Trade 
Commission.  While  the  views  herein  expressed 
are  entirely  personal  ones,  and  are  not  neces- 
sarily in  agreement  with  those  of  any  or  all  of 


Preface 


XL 


these  gentlemen,  the  fact  remains  that  each  of 
them  has  given  me  many  valuable  suggestions, 
and  their  contributions  to  the  volume  both 
directly  and  indirectly  have  been  considerable. 
Finally,  I  am  greatly  indebted  to  my  dear 
friend  Professor  W.  W.  Pierson,  of  the  Uni- 
versity of  North  Carolina,  formerly  my  col- 
league at  Columbia.  Professor  Pierson  read 
the  original  typewritten  manuscript  and  radi- 
cally revised  considerable  portions  thereof,  in 
addition  to  making  a  number  of  most  valuable 
suggestions.  The  volume  owes  much  to  him, 
and  the  assistance  of  his  discriminating  and 
critical  mind  has  been  invaluable.  It  is,  of 
course,  needless  to  add  that  Professor  Pierson 
is  in  no  sense  of  the  word  responsible  for  any 
of  the  errors  or  omissions  of  the  volume. 

W.  H.  S.  Stevens 

New  Orleans,  La. 
June  1, 1916 


If 


CONTENTS 

Introduction j 

CBAPTEK 

I.  Local  Pmce-Cutting lo 

n.  Operation  of  Bogus  "Iitoependent"  Con- 
cerns         ,        ,  jg 

HI,  Fighting  Instruments 40 

IV.  Conditional   Requirements    ("Tying" 

Clauses) ^ 

V.  Exclusive  Arrangements 77 

VI.  Black  Lists,  Boycotts,  White  Lists,  etc.  .  97 

VII.  Rebates  and  Preferential  Arrangements  113 

Vni.  Engrossing  Machinery  or  Goods  Used  in 

the  Manufacturing  Process    ....  139 

IX.  Espionage j^ 

X.  CoERaoN,  Threats,  Intimidation,  etc.  .     .  x66 

XT.  Interference j^^ 

Xn.  Manipulation 214 

Xin.  Conclusion 217 

^^ .  24s 


... 
zu 


INTRODUCTION 

Section  V  of  the  Federal  Trade  Commission  j 
Act  reads  as  follows: 

That  unfair  methods  of  competition  in  commerce 
are  hereby  declared  unlawful. 

The  Commission  is  hereby  empowered  and  directed 
to  prevent  persons,  partnerships,  or  corporations,  ex- 
cept banks,  and  common  carriers,  subject  to  the  acts 
to  regulate  commerce,  from  using  unfair  methods  of 
competition  in  conunerce. 

Around  this  section  centered  much  of  the 
debate  on  the  trust  legislation  of  the  Wilson 
administration.  This  was  not  unnatural.  The 
term  "unfair  competition"  is  very  difficult  to 
define,  and  it  is  scarcely  less  difficult  to  explain. 
Congressmen  and  senators  were  no  more  clear 
as  to  its  meaning  than  were  outside  individuals. 
Several  legislators  favored  the  enumeration 
and  prohibition  of  certain  specific  practices. 
These  in  consequence  opposed  the  general 
inclusive  prohibition  of  unfair  methods  of  com- 
petition as  lacking  definiteness.  The  subject 
was  canvassed  pro  and  con,  but  ultimately  the 
supporters  of  the  general  prohibition  won  and 
the  disputed  section  remained  in  the  Trade 


a  Unfair  Competition 

Commission  Act  as  finally  passed  by  the  Senate 
and  the  House.' 

^  In  endeavoring  to  determine  the  meaning  and 
significance  of  unfair  competition  it  is  perhaps 
best  to  consider,  first,  what  may  be  designated 
as  the  older  signification  of  the  term.    For 
many  years  the  words  "unfair  competition" 
have  been  frequently  used  by  the  courts  and 
have   had   a   fairly  well-established  meaning 
in  the  law.    In  addition  there  have  appeared 
several  legal  treatises  entitled  Unfair  Competi- 
tion.    But  it  is  to  be  noted  that,  until  com- 
paratively recent  years,  both  the  courts  and  the 
legal  profession  have  given  to  this   term  a 
relatively  narrow  construction.    To  realize  this 
fact  it  is  only  necessary  for  one  to  consult  the 
definitions  of  unfair  competition  to  be  found 
in  the  legal  encyclopedias    and   dictionaries. 
Thus  in  the  Cyclopedia  of  Law  and  Procedure 
we  find  the  term  defined  as — 

passing  off  or  attempting  to  pass  off,  upon  the  public, 
the  goods  or  business  of  one  person  as  and  for  the  goods 
or  business  of  another.  It  consists  essentially  in  the 
conduct  of  a  trade  or  business  in  such  a  manner  that 
there  is  either  an  express  or  implied  representation  to 

« For  an  analysis  and  criticism  of  the  Wilson  trust  legislation 
together  with  a  brief  sketch  of  legislative  history  of  the  two  laws' 
cf.  W.  H.  S.  Stevens,  "The  Federal  Trade  Commissiori  Act," 
American  Economic  Review,  IV  (December,  1014),  840.  and  "The 
Clayton  Act,"  »WJ.,V  (March,  1915),  38. 


Introdiiction  % 

that  effect The  basic  principle  is  that  no  one 

has  a  right  to  dress  up  his  goods  or  otherwise  represent 
them  in  such  a  manner  as  to  deceive  an  intending 
purchaser  and  induce  him  to  beUeve  he  is  buying  the 
goods  of  another.' 

Similarly,  the  legal  text  writers  will  be  found 
to  devote  their  attention  almost  wholly  to 
practices  either  of  this  or  of  a  like  character. 

Until  recent  years,  therefore,  the  term 
"unfair  competition"  has  referred  primarily 
to  the  marketing  of  goods  by  methods  involving 
fraud,  misrepresentation,  etc.* 

^Cyclopedia  of  Law  and  Procedure,  xxxviii,  756-58. 
» Specific  exceptions  to  this  rule  may  of  course  be  found  in  the 
cases.    Thus  the  courts  have  sometimes  upheld  or  enjoined  other 
practices  than  those  which  would  be  comprehended  in  the  forego- 
ing definition  (cf .  Report  of  the  Commissioner  of  Corporations  Trust 
Laws,  and  Unfair  Competition,  chaps,  vii,  viii).   In  some  such  cases 
these  methods  have  been  specificaUy  declared  to  be  either  unfair 
or  fair  competition,  but  in  many  instances  the  decision  which  has 
been  rendered  has  been  based,  not  upon  the  fairness  or  unfair- 
ness of  the  method  involved,  but  upon  some  other  question,  such 
as  whether  the  practice  involved  or  constituted  restraint  of  trade 
or  monopoly.    A  fairly  good  iUustration  of  this  point  is  Whitwell 
V.  Continental  Tobacco  Company,  where  the  court  declined  to 
hold  void  under  the  Sherman  Act  a  rebatmg  scheme  designed  to 
secure  exclusive  selling  (cf.  infra,  chap.  vii).    It  ought  perhaps 
to  be  added  that  it  does  not  foUow  because  of  this  decision  that 
such  an  arrangement  is  not  unfair  competition,  nor  that  it  will 
not  be  so  regarded  under  the  provisions  of  the  new  law.    Some 
of  the  later  legal  text  writers  also  consider  unfair  competition  from 
a  broader  standpoint  than  that  of  the  definition  above.    Thus 
Nims  (Unfair  Business  Competition)  devotes  considerable  space 
to  a  discussion  of  interference  with  competitors,  contracts,  etc, 
Ccf.  mfra,  chap.  xi).     Giving  due  weight  to  these  specific  excep- 
tions, however,  the  writer  is  incUned  to  believe  that  it  is  none  the 


4  Unfair  Competition 

Now,  it  is  by  no  means  unlikely  that  the 
term  "unfair  methods  of  competition''  as  used 
in  the  Trade  Commission  Act  may  and  will  be 
so  construed  as  to  embrace  unfair  competition 
in  the  older  signification  which  has  been  dis- 
cussed.   But  it  can  scarcely  be  said  that  it  was 
primarily  for  the  purpose  of  preventing  such  acts 
that  section  5  of  the  Trade  Commission  Law 
was    enacted.     All    the    practices    embraced 
within  the  meaning  of  unfair  competition  in 
the  older  sense  have  been  repeatedly  before 
the  courts.    For  years,  ahnost  centuries,  equity, 
both  in  England  and  in  the  United  States, 
has  stepped  in  to  enjoin  these  methods,  so  that 
the  law  of  unfair  competition  in   the  older 
legal  sense  of  the  term  is  fairly  well  established. 
To  prevent  such  practices,  therefore,  legisla- 
tion  was    scarcely  necessary.    At    the   same 
time   there  exist   numerous   methods  which, 
while  not  usually  involving  fraud,  misrepre- 
sentation, etc.,"  are  none  the  less  a  most  serious 
economic  evil.    Primarily  it  may  be  said  that 
the  unfair-competition  section  of  the  Trade 
Commission  Act  was  directed  against  these  prac- 
tices.   It  was  intended  to  prohibit  and  prevent 

less  correct  to  say  that  up  to  a  comparatively  recent  date  the 
meaning  of  the  term  "unfair  competition"  was  that  of  "passing 
off,"  or  "misrepresentation,"  as  stated  in  the  definition  above. 
'  Except  perhaps  in  the  case  of  bogus  independent  concerns. 


Introduction  5 

those  classes  of  acts  which,  for  want  of  a  better 
term,  may  be  described  as  eroTinmirally  nnf^jr 
To  understand  clearly  the  nature  of  such 
practices,  it  is  necessary  for  one  to  compre- 
hend what  is  involved  in  economically  fair 
competition.    In  an  economic  sense  fair  com- 
petition signifies  a  competition  of  economic  or 
productive    efficiency.    In    other    words,    an 
organization  is  entitled  to  remain  in  business 
as  long  as  its  production  and/or  selling  costs 
enable  it  to  compete  in  a  free  and  open  market. 
As  the  productive  and  selling  efficiency  of  one 
or  more  competing  concerns  in  any  line  of 
business  increases  beyond  that  of  others,  the 
price  of  the  goods  sold  tends  correspondingly 
to  decline.     The  more  efficient  organizations 
reduce  the  price  in  an  endeavor  to  increase  their 
volume  of  sales,  expecting  more  than  to  com- 
pensate for  the  decreased  profit  per  unit  by 
the  larger  number  of  units  sold.     Generally, 
marginal   concerns   will   gradually   lose   their 
market.    Ultimately,  if  unable  to  reduce  or  hold 
their  costs  below  the  market  price,  they  will 
be  compelled  to  discontinue  business.' 

*  This  is  the  theory  of  fair  competition  upon  which  has  been 
constructed  what  may  be  termed  the  competition  theory  of 
monopoly.  In  its  essence  this  theory  is  that  the  logical  result 
of  the  competitive  process  is  the  concentration  of  the  business  in 
the  hands  of  one  organization,  or,  at  most,  a  very  few.  The 
soundness  of  this  theory  will  be  discussed  later  in  detail. 


»^ 


y^ 


6  Unfair  Competition 

To  the  individual  organization  which  chances 
thus  to  be  eliminated  the  result  of  the  process 
undoubtedly  appears  extremely  harsh.    Yet  as 
long  as  competition  continues  to  be  regarded 
as  an  economically  sound  principle,  as  long  as 
society  accepts  and  countenances  it,  there  can 
scarcely  be  said  to  be  either  unfairness  or  in- 
justice involved  in  the  results  which  it  logically 
brings  to  pass,  i.e.,  the  ehmination  of  inefficient 
organizations.    The  justification  of  the  prin- 
ciple of  competition  must  always  be  found  in 
the  benefits  which  its  operation  confers  upon 
society.    The  interests  of  society  lie  in  the 
highest  possible  utility  at  the  lowest  possible 
cost.'    In    essence    this    simply    means    that 
society  is  interested  in  procuring  at  the  lowest 
po^ible  prices  those  goods  best  adapted  to  the 
satisfaction  of  its  wants,  since,  generally  speak- 
ing, the  lower  the  price  the  less  the  total  labor- 
pain  cost  of  acquisition  and  the  larger  the  total 
surplus  of  satisfactions  which  society  obtains. 
To  secure  this  result  it  is  necessary  that  efficient 
units  of  organization  shall  be  preserved;   and 
it  is  equally  desirable  that  inefficient  units  shall 
be  destroyed.    The  latter  constitute  an  unne- 

'Cf.  Robert  Liefmann,  "Monopoly  or  Competition  as  the 
Basis  of  a  Government  Trust  Policy,"  Quarterly  Journal  of 
Economics,  XXDC  (February,  1915),  311. 


Introdtiction 


cessary  burden  to  society,  and  no  economic 
justification  for  their  existence  can  be  found. 
Economically  fair  competition  brings  to  pass 
both  results.  Under  its  operation  every  organi- 
zation has  an  opportunity  to  survive  and  con- 
tinue in  business  which  is  conditioned  solely 
upon  productive  and/or  selling  efficiency,  and 
only  those  imits  which  are  lacking  in  these 
qualities  are  eliminated. 

Unfortunately  competition  has  not  always 
been  so  conducted  that  the  logical  results  of  the 
competitive  process  have  appeared.  Efficient 
concerns  have  by  no  means  always  survived. 
All  too  frequently  they  have  been  destroyed, 
not  by  superior  efficiency,  but  by  methods 
against  which  their  own  efficiency  afforded 
little  or  no  protection.  Again  and  again 
methods  and  practices  have  been  employed 
which  destroy  the  freedom  of  the  market,  which 
restrict  and  hamper  the  efficiency  of  other 
units,  and  which  prevent  potential  competitors 
from  becoming  actual  rivals.  Such  artificial 
arrangements  are  clearly  unjustifiable  from  an 
economic  standpoint.  As  already  indicated, 
the  essence  of  fair  competition  is  the  preserva- 
tion of  the  efficient  and  the  destruction  of  the 
inefficient.  Where  unfair  methods  are  used, 
the  normal  consequences  of  the  operation  of 


8 


Unfair  Competition 


the  principle  of  competition  may  be  reversed. 
The  efficient  are  frequently  destroyed  and  the 
inefficient  not  infrequently  preserved.     The  use 
of  such  practices   has  therefore  no  economic 
justification,  and,  in  consequence,  all  methods 
of  this  character  must  be  regarded  as  unfair. 
In  other  words,  so  far  as  competitive  business 
is  concerned,  the  final  test  of  the  fairness  of  a 
given   method  should   be  whether  or  not  it 
restricts  actually,  or  potentially,  the  normal 
operation  of  the  law  of  competition  with  the 
resulting  survival  of  efficiency.    Any  method 
used  in  competition  which  hinders  or  prevents 
the  normal  results  ensuing  from  the  free  opera- 
tion of  the  competitive  principle  must  be  ad- 
judged unfair.' 

Occasional  instances  of  the  use  of  economi- 
cally unfair  competition  are  found  in  the  history 
of  small  and  relatively  unimportant  organiza- 
tions. But  it  is  at  once  interesting  and  sig- 
nificant that  in  perhaps  the  majority  of  cases 
the  greatest  development  and  diversification 
of  such  methods  have  been  attained  by  the 
most  highly  monopolistic  organizations.    While 

'  The  reader  should  clearly  understand  that  this  discussion 
has  no  reference  to  the  legality  or  illegality  of  various  methods  of 
competition.  That  is  a  matter  for  the  decision  of  the  Trade 
Conmiission  and  the  courts.  This  volume  attempts  merely  to 
show  the  economic  basis  for  regarding  certain  methods  as  unfair. 


IntrodiLction 


such  methods  are  not  always  easy  of  classifi- 
cation, it  is  still  possible,  by  selecting  what 
appear  to  be  their  most  fundamental  charac- 
teristics, to  distinguish  the  following  twelve 
classes  of  "unfair  methods  of  competition": 

I.  Local  price-cutting. 

II.  Operation  of  bogus  independent  concerns. 
in.  Fighting  instruments. 
IV.  Conditional  requirements. 
V.  Exclusive  arrangements. 
VI.  Black  lists,  boycotts,  white  lists,  etc. 
VII.  Rebates  and  preferential  arrangements. 
Vni.  Engrossing  machinery,  or  goods  used  in  the 
manufacturing  process. 
IX.  Espionage. 

X.  Coercion,  threats,  intimidation,  etc. 
XI.  Interference. 
XII.  Manipulation.' 

'  These  twelve  forms  of  competition  are  not  always  so  clearly 
distinguishable  one  from  another  that  exact  differentiation  is 
possible.  Occasionally  one  method  so  overlaps  another,  or  one 
so  supplements  another,  that  it  could  be  discussed  equally  well 
under  either  of  two  classes.  When  this  occurs,  the  difficulty 
of  accurate  classification  is  increased.  The  writer's  allocation, 
therefore,  may  not  always  be  regarded  as  satisfactory.  It  has 
been  attempted,  however,  in  all  cases  to  describe  each  form  of 
competition  in  such  a  manner  as  to  show  the  close  connection 
which  sometimes  subsists  between  a  given  method  and  practices 
elsewhere  treated. 


^ 


Local  Price-Cutting 


II 


CHAPTER  I 
LOCAL  PRICE-CUTTING 

Local  price-cutting  has  been  a  frequent  and 
familiar  weapon  of  certain  trusts.    As  here 
used,  the  term  refers  to  the  practice  pursued  by 
some  organizations  of  cutting  the  prices  of  their 
products  to  a  point  below  the  cost  of  production 
in  one  or  more  of  those  localities  in  which  com- 
petition exists.    The  loss  entaHed  is  usually 
recouped  by  the  profits  derived  through  the 
high  prices  charged  in   those  regions  where 
competition    is    either    insignificant    or    non- 
existent.*   This    method    has    been    utilized 
repeatedly  by  large  and  powerful  organizations. 
The  ultimate  outcome*  in  such  cases,  with  but 

*  A  sectional  discrimination  of  this  character  may  some- 
tmi^  be  regarded  as  unfair  even  though  prices  are  not  cut  to 
a  pomt  below  the  cost  of  production. 

J"  A  story  related  by  Clark  Ulustrates  admirably  the  situation 

imder  local  price-cutting:    "A  producer once  caUed  on 

the  manager  of  the  trust  that  was  driving  him  to  the  waU,  and  was 
received  with  a  brusque  admonition  that  he  had  'better  get  out 
of  business.'  'But,  do  you  not  see/  said  the  mdependent  pro- 
ducer, that,  m  my  territory,  I  can  produce  more  cheaply  than 
you  can?  'Do  you  not  see,'  was  the  reply,  'that,  if  we  lose 
money  in  the  twenty  cities  where  you  are  operating,  and  make 
money  m  two  hundred  otiier  cities  where  we  are  operating  we 
come  out  ahead?' »~J.  B.  and  J.  M.  Clark,  The  CotUrol  of 
Trusts,  pp.  34-35.  •' 

10 


few  exceptions,  has  been  the  destruction  and 
elimination  of  competition  in  those  regions 
where  this  practice  has  been  employed. 

Probably  the  best  examples  of  the  operation 
and  effects  of  local  price-cutting  are  to  be  found 
in  the  histories  of  the  old  Oil  and  Powder 
trusts.  In  the  case  of  the  former  organization, 
the  prices  charged  in  various  localities  appear 
to  have  been  governed  rather  definitely  by  the 
percentage  of  competition  to  be  met  in  each 
section.  Wilhoit  testified  in  the  Missouri 
Standard  Oil  case  that  in  his  experience  the 
Waters-Pierce  Oil  Company  or  Standard  Oil 
Company  based  "  their  prices  in  a  locality  on 
their  nearest  competitor,  or  upon  the  presence 
or  absence  of  competition.  When  there  was 
competition  prices  would  be  lower,  and  increase 
with  the  distance  from  competition."'  An  ex- 
amination of  the  tables  of  prices,  profits,  and 
percentages  of  competition  presented  in  the  brief 
for  the  United  States  in  the  suit  against  the 
Standard  Oil  Company  confirms  this  testimony 
and  indicates  that  the  prices  and  profits  on  oil 
as  between  various  localities  were  roughly  high 
or  low  according  as  the  percentages  of  competi- 
tion were  low  or  high.     On  October  15,  1904, 

» Abstract  of  testimony  of  E.  M.  Wilhoit,  Slate  ex.  inf.  Hadley, 
Attorney-General  v.  Standard  Oil  Company,  218  Mo.  i;  cf.  129. 


IJ 


Unfair  Competition 


'♦.i 


the  Standard  OU  Company's  profits  and  losses 
on  water-white  iUuminating  oU  ranged  from  as 
high  as  6.48  cents  per  gaUon  profit  in  Albu- 
querque, New  Mexico,  with  7  per  cent  of  com- 
petition,' and  6.1  cents  per  gaUon  profit  m 
Spokane,  with  no  competition,  to  as  low  as 

-  The  foUowing  table  indicates  these  variations  more  fully 
It  IS  made  up  by  selecting  a  considerable  number  of  dti«  from 
the  tabl«m  the  brief  for  the  United  States  in  StaJaTm  cZ 

11,  pp.  43»-36.     (These  tables  are  reproduced  in  full  in  W  H  S 

Bowever,  that  this  Uble  shows  a  somewhat  closer  relationship 
^eXr 'Ih'"'  ""-l,  P'ofi'^  on  the  one  hand  and  competitfon  on 
repr^c^         "  ""**'  "  ^  "^^  "'°P'^'«  ^"es  were 


aty 


Albuquerque 


Sute 


New  Mexico 


I?PA^?S:v;:v  ••••••   Wa^ingt, 


Salt  Lake  City 

Seattle 

Fargo 

Sacramento. 
Columbia . . 
Nashville.  . , 
Portland. .  . 
Boston.  .  .  . 
New  York.. 
Hairisbutg. . 

Omaha 

Wichita. .  . . 
Columbus. . 
New  Orleans 
Pittsburgh.. 
Chicago. . . . 

DuluS 

Louisville . . . 
Richmond . . , 
Los  Angeles. 
Cincinnati.  . , 


Utah 

Washington 

North  DakoU 

California 

South  Carolina 

Tennessee 

Maine 

Massachusetts 

New  York 

Pennsylvania 

Nebraiska 

Kansas 

Ohio 

Louisiana 

Pennsylvania 
Illinois 

Minnesota 

Kentucky 

Virginia 

California 

Ohio 


Price 

in  Cents 

Per  Gallon 


23 

31. s 

30 
XS.S 

n  s 
13 
13 
12 

11. s 

II 

io.qS 

10.  s 
10 
xo 
9  5 

I' 
1:1 

1^ 

75 
7 


Margin 

in  Cents 

Per  Gallon 


6.48 
6.Z0 
4  09 

4.17 
2.IO 

2  45 
3.27 

3.11 

2.34 
3.82 

a. 31 

a. 47 
0.41 

0.48 

1.72 

0.87 
0.56 
-0.88 
-0.38 
-0.27 
-3.16 
-1.09 


Percentage 
of  Com- 
petition 


7 

o 

0.8 

o 

o 

o 

o 

o 

o 

8.6 
10.3 

21.7 
32.1 

2.3 

51.2 

32.8 
12.7 

9  9 
l6.i 
12.0 
33  4 
45  3 


nw  ^f '  ?°?'r^S^.?P^*^*'  instances  of  local  price-cutting  by  the 
old  Standard  Oil  Company  cf.  brief  cit.  supra,  Vol.  H,  pp.  424c«. 


Local  Price-Cutting 


13 


3.16  cents  per  gallon  loss  in  Los  Angeles  with 
33.4  per  cent  of  competition  and  1.35  cents 
per  gallon  loss  in  New  Orleans  with  51.2  per 
cent  of  competition. 

The  history  of  the  development  of  the  various 
combinations  in  the  explosives  business  is  in 
some  respects  merely  a  record  of  local  price- 
cutting  and  its  results.  Each  campaign  of  this 
character  which  was  undertaken  was  speedily 
followed  by  the  acquisition  of  the  concerns 
attacked  and  by  new  articles  of  association 
whereby  such  organizations  became  parties  to 
the  new  combination.^  In  many,  if  not  the 
majority  of  cases,  a  new  company  producing 
explosives  was  given  practically  no  chance 
whatever  of  surviving.  In  the  contest  against 
the  King's  Great  Western  Powder  Company; 
for  example,  instructions  were  given  by  the 
Hazard  Powder  Company  to  its  agents  to 
cut  the  price  with  the  gtmranty  to  consumers 
that  the  cut  price  would  be  ten  cents  lower  than 
any  price  which  the  King^s  Company  would 
make  to  them.  As  a  result  the  price  of  rifle 
powder  in  Cincinnati,  where  the  King's  Com- 
pany was  located,  declined  to  $2.25  per  keg, 
with  some  sales  at  $2.15  and  $2.10,  although 

'Cf.  W.  H.  S.  Stevens,  "The  Powder  Trust,"  Quarterly 
Journal  of  Economics,  XXVI  (May,  19 12),  pp.  4475. 


14 


Unfair  Competition 


i 


in  the  New  England  states,  the  eastern  sea- 
board, and  the  extreme  western  states  it  sold 
at  the  full  list  price  of  $6.25  per  keg.  Simi- 
larly, the  price  of  blasting  powder  receded  from 
$2.75  or  $2.85  to  80  cents  per  keg  in  carload 
lots,  though  prices  were  fully  maintained  in  the 
non-contested  districts.' 

In  its  operations  against  the  Birmingham 
Powder  Company  a  few  years  later,  the  Powder 
Trust  set  a  price  of  70  cents  per  keg  on  powder 
f.o.b.  Birmingham,  and  added  to  this  price  the 
freight  rates  from  that  point  to  the  markets 
which  it  wished  to  reach.  The  results  were  not 
long  delayed.  As  one  of  the  persons  associated 
with  this  operation  laconically  remarked,  "It 
was  perhaps  a  year  until  they  died."* 

The  National  Cash  Register  Company,  as 
well  as  these  two  pioneers  in  local  price-cutting, 
appears  to  have  appreciated  at  an  early  date  the 
advantages  of  this  method  of  competition.  The 
following  is  a  quotation  from  the  record  in 
the  suit  brought  against  this  organization  by 
the  state  of  Michigan: 

Mr.  Clark:  Page  429  of  the  Exhibit  is  as  follows: 
It  is  dated  at  the  top  of  the  page  October  i,  1897. 

rr  '  ^'  o^"    ^^^^^"'    quoted  in  brief  for  the  United  States, 
U fitted  States  v.  E.  I.  du  Pont  de  Nemours  fir  Company  U  S  C  C 
for  the  District  of  Delaware,  Vol.  II,  pp.  18-19. 

*Ibid.,  pp.  129-30.    According  to  the  same  testimony  the 
pnce  of  70  cents  was  about  5  cents  below  cost. 


Local  Price-Cutting 


"THE  N.C.R. 


IS 


"Losses  on  opposite  side  of  the  Globe  made  up  by 
gains  here,  while  all  the  rest  of  the  Company's  offices 
are  making  a  profit." 

Mr.  Clark:  Underneath  that  is  a  circle;  in  the 
center  of  the  circle  is  another  circle  marked  "N.C.R. 
Co.."  the  circle  has  around  its  border  a  number  of 
crosses  with  an  arrow  pointing,  one  at  the  top  of  the 
circle  to  figure  2,  an  arrow  pointing  to  a  cross  at  the 
bottom  of  the  circle  with  a  number  i,  following  which 
is  reading  matter  as  follows: 

"Temporary  losses  here  on  account  of  competition." 

"This  circle  represents  the  earth.  The  small 
crosses  represent  the  several  offices  of  The  National 
Cash  Register  Company  in  every  civiUzed  country. 
Suppose  competition  springs  up  in  territory  pointed 
out  by  arrow  No.  i.  The  National  Cash  Register 
Company  can  afford  to  do  business  here  at  a  loss  if 
necessary  to  meet  the  competition,  because  the  profit 
made  at  the  office  marked  with  arrow  No.  2  will  make 
up  for  the  loss,  while  all  the  other  offices  of  the  Com- 
pany all  over  the  civilized  globe  will  make  a  profit  and 
keep  up  the  income  of  the  Company  to  its  normal 
amount."' 

*  Record,  John  E.  Bird,  Attorney-General,  in  Behalf  of  the 
People  of  the  State  of  Michigan,  ex  rel.  Henry  F.  James  v.  National 
Cash  Register  Company,  Supreme  Court,  state  of  Michigan,  Vol. 
II,  p.  985.  It  is  probably  true  that  the  losses  referred  to  in  this 
case  included  competition  costs  other  than  the  expense  of  local 
price-cutting.  So  far  as  local  price-cutting  occurs  in  the  case  of 
the  Cash  Register  Company,  it  is  primarily  a  development  of  the 
use  of  "knocker  machines"  discussed  in  chap,  iii  infra.  For 
other  alleged  examples  of  local  price-cutting,  cf.  petition  in 


i6 


Unfair  Competition 


Local  Price-Cutting 


17 


if 


From  the  consumer's  standpoint  it  may  be 
desirable  that  a  concern  shaU  seU  its  products 
at  as  low  a  price  as  possible;  but  this  fact  does 
not  justify  local  price-cutting.    Any  gain  to  the 
consumer  under  this  method,  in  addition  per- 
haps to  causing  a  correspondmg  loss  to  some 
other  consumer,'  is  usuaUy  of  a  temporary  char- 
acter.   When  the  organizations  against  which 
a  campaign  of  local  price-cutting  is  directed  are 
driven  from  the  field,  their  business  is  absorbed 
by  the  price-cutting  concern.    Prices  then  re- 
.  sume  a  level  at  least  as  high  as  under  fair  com- 
petition, and  frequently  they  reach  an  even 
higher  one. 

Efficient  or  inefficient,  no  organization  can 
long  survive  a  program  of  local  price-cutting. 
In  the  case  of  the  inefficient,  the  unfairness  is  of 
little  moment.  Sooner  or  later  such  an  organ- 
ization is  doomed  to  succumb  to  the  efficiency 
of  other  concerns.  The  important  economic 
unfairness  of  the  method,  therefore,  Ues  in  the 
destruction  of  efficient  organizations.  If  the 
price  charged  for  a  given  commodity  were  based 

equity,  United  States  v.  American  Coal  Products  Company  for 
the  SouUiem  District  of  New  York,  p.  30;  original  peUtion, 
untied  States  v.  American  Sugar  Refining  Company,  U.S.C.C. 
for  the  Southern  District  of  New  York,  pp.  98-99. 

» Through  the  fact  that  higher  prices  may  be  charged  con- 
sumers m  non-competitive  territory. 


upon  production  and  selling  costs,  every  organ- 
ization capable  of  attaining  a  certain  degree  of 
productive  efficiency  could  compete,  and  each 
would  have  at  least  a  reasonable  opportunity 
of  surviving.  The  inefficient  only,  under  such 
circumstances,  would  be  eliminated.  Under 
the  conditions  of  local  price-cutting,  on  the 
contrary,  the  prices  made  by  the  price-cutting 
organization  bear  no  relation  to  production 
costs.  Productive  efficiency  is  therefore  no 
defense  to  competitors  against  an  attack  of  this 
character.  This  quality  alone  will  not  enable 
them  to  survive.  Possibly  it  may  prolong  the 
struggle,  yet  even  this  may  be  doubted.  It  is 
not  unlikely  that  the  greater  the  productive 
efficiency  of  competitors  the  more  strenuous 
will  be  the  warfare  waged  against  them. 

It  may  be  argued  with  considerable  force 
that  an  organization  ought  not  to  be  deprived 
of  the  use  of  local  price-cutting.  Assume  that 
a  large  trust  discovers  that  it  is  losing  business 
in  a  given  locahty  to  concern  A.  Because  of  its 
efficiency,  A  has  been  able  to  reduce  its  prices 
even  below  those  of  the  trust.  Ought  not  the 
latter  then  to  be  allowed  to  cut  its  prices  in  A's 
locality  in  order  to  regain  its  lost  business  ?  To 
answer  this  question  in  the  affirmative  is  to 
overlook  the  serious  general  consequences  of  the 


i8 


Unfair  Competition 


use  of  this  method.  Price-cutting  in  selected 
localities  is  too  dangerous  a  weapon  to  be  per- 
mitted to  any  organization.  If  allowed  under 
extenuating  circumstances  such  as  those  above, 
there  is  not  and  cannot  be  any  guaranty  that 
it  will  not  be  employed  to  destroy  all  competi- 
tion. In  the  foregoing  illustration  the  only 
method  by  which  the  trust  should  be  permitted 

I  to  regain  the  business  lost  to  A  is  by  a  general 

instead  of  a  local  price-cut.  Then  if  it  cuts 
prices  below  the  cost  of  production  in  A's  terri- 
tory, it  must  do  the  same  throughout  the 
country.  In  such  a  situation  every  dollar  lost 
by  A  in  retainmg  its  business  would  mean  a 
thousand  lost  by  the  trust.  A  has  a  reasonable 
chance  of  surviving.  Strong  probability  exists 
that  it  can  endure  this  state  of  affairs  for  as  long 
a  period  as  the  trust.  If  the  trust's  efficiency 
so  increases  that  without  loss  it  is  able  to  reduce 
its  prices  throughout  the  country  to  a  level 
below  that  of  A's  cost  of  production,  then  A 
may  be  forced  to  the  wall.  But  such  an  eUmi- 
nation  would  not  be  unfair,  since  it  is  based 
upon  the  survival  of  the  efficient. 


CHAPTER  II 

OPERATION  OF  BOGUS  "INDEPENDENT" 

CONCERNS 

The  operation  of  bogus  independent  concerns 
is  a  method  of  unfair  competition  which  has  also 
been  extensively  employed.  In  fact,  it  is  per- 
haps more  commonly  utilized  than  any  other 
method.  A  bogus  independent  concern  may 
be  defined  as  an  organization,  nominally  or 
apparently  independent,  which  in  reaUty  is 
secretly  controlled  and  operated  by  another 
concern  in  order  to  destroy  independent  com- 
petition. Two  bogus  concerns  of  the  former 
Powder  Trust  were  termed  "yellow  dog  com-| 
panics"  by  Mr.  T.  C.  du  Pont.  An  accountl" 
of  their  operations  adequately  illustrates  this 
method  of  competition: 

Q.    What  do  you  know  about  the  yellow  dog  com- 
panies, if  anything  ? 

A.    May  I  ask  you  a  question  ? 
Q.    Yes. 

A,    If  the  president  of  the  company  told  me,  am 
I  permitted  to  answer  ? 

19 


20 


Unfair  Competition 


# 


Q,  Yes.  That  is  my  judgment,  unless  the  gentle- 
men diflfer  with  me. 

A.  During  the  conversation  with  Mr.  T.  C. 
du  Pont,  the  president,  in  which  he  was  endeavoring 
to  explain  to  me  the  objects  of  the  trust,  he  told  me 
that  ....  it  was  necessary  for  him,  ....  just  like 
a  little  boy,  to  have  a  dog,  to  which  he  could  whistle 
and  call. 

Q.    What  kind  of  a  dog  ? 

A.  He  tenned  it  "a  yellow  dog,"  and  he  explained 
to  me  that  after  I  had  exhausted  all  my  resources,  and 
those  of  the  traveling  men  under  my  office,  that  if  I 
was  not  able  to  regain  the  trade,  that  I  was  to  whistle 
by  writing  a  letter,  and  that  they  would  then  send  on 
a  little  yellow  dog,  which,  at  that  time,  in  the  high 
explosives  business,  was  known  as  the  CUmax  Powder 
Manufacturing  Company,  of  Emporium,  and  the  New 
York  Powder  Company,  of  New  York 

Q,  Had  you  occasion  to  whistle  for  the  little  yellow 
dog? 

A.    Yes,  sir. 

Q.    Did  you  do  so  ? 

A,    Yes,  sir. 

Q.    What  occurred,   [sic]  State  what  you  did  ?   [sic] 

A.  If  we  met  the  prices,  that  meant  the  lowering 
of  our  prices  on  our  brands;  but  the  little  yellow  dog 
would  come  in,  and  we  would  say  that  we  didn't  recog- 
nize them  at  all,  that  their  goods  were  of  no  account, 
and  were  of  low  grade,  and  all  that  kind  of  thing;  so 
we  didn't  have  to  lower  our  prices  to  the  adjoining 
trade;  but  the  yellow  dog  got  the  business. 


Bogus  ^' Independent^^  Concerns         21 

Q.  To  whom  did  they  belong  to,  [sic]  if  you  know, 
that  is,  the  Climax  Powder  Company  and  the  New 
York  Company? 

A.    To  the  trust. 

Q.    To  the  trust? 

A.    Yes,  sir. 

Q,  Was  that  the  E.  I.  du  Pont  de  Nemours  Powder 
Co.? 

A.    Yes,  sir.* 

It  has  been  alleged  that  as  early  as  1897  the 
members  of  the  Electric  Lamp  Combination 
organized  a  bogus  independent,  known  as  the 
"Royal  Incandescent  Lamp  Company."  In 
reality  this  concern  was  a  selling  agency  for  the 
purpose  of  marketing  the  lamps  of  the  combi- 
nation under  the  brand  name  "Regal."  These 
lamps,  so  it  is  claimed,  were  sold  at  prices 
intended  to  deprive  independent  companies  of 
their  customers  and  trade.  The  Royal  Com- 
pany was  financed  by  contributions  made  from 
time  to  time  by  the  members  of  the  combination 
in  order  to  meet  the  expenses  of  the  scheme.* 

It  has  been  claimed  that  effective  use  of  such 
concerns  was  likewise  made  by  the  old  Standard 
Oil  Company.  In  the  dissolution  suit  brought 
against   that    organization    the   government's 

»  Pet.  rec.  testimony,  United  States  v.  E.  I,  du  Pont  de  Nemours 
6*  Company,  cit.  supra,  Vol.  II,  pp.  686  flf. 

» In  equity,  United  States  v.  General  Electric  Company,  U.S.C.C. 
for  the  Northern  District  of  Ohio,  p.  34. 


212 


Unfair  Competition 


Bogus  ^^ Independent^^  Concerns         23 


brief  gave  a  list  of  sixty-odd  concerns  which 
were  said  to  have  been  operated  at  various 
times  as  independents  in  different  parts  of  the 
country.  Some  of  these  were  individuals,  a 
few  of  them  were  actual  corporations,  while 
still  others  had  company  names/ 

The  old  American  Tobacco  Company  is  also 
said  to  have  employed  numerous  organizations 
of  this  kind.  In  the  dissolution  suit  against  that 
corporation  the  brief  for  the  United  States  in 
the  lower  court  showed  nineteen  different 
organizations  secretly  operated  after  1899  by 
the  various  tobacco  companies  belonging  to 
the  combination.*  Some  of  these  secretly  con- 
trolled companies  were  directly  subsidized  by 
paying  them  two  cents  a  pound  on  their  output. 
Still  others  were  supplied  with  funds  and  were 
run  at  a  heavy  loss.  Considerable  care  was 
often  taken  to  give  some  of  these  organizations 
the  appearance  of  being  independent.  Thus 
a  price  list  of  the  R.  A.  Patterson  Tobacco 
Company  (issued  in  1905  when  the  American 
Tobacco  Company  owned  aU  of  its  stock)  con- 
tained the  following  statement: 

'  Brief  for  the  United  States,  Standard  Oil  Co.  v.  United  States, 
cii.  supra.  Vol.  II,  pp.  520  flf. 

'Brief  for  the  United  States,  United  States  v.  American 
Tobacco  Company,  U.S.C.C.  for  the  Southern  District  of  New 
York,  pp.  101-2. 


NoncE. 

Our  plant  is  strictly  and  emphatically  independent 
of  all  Trusts  and  Combines.  It  is  useless  to  suggest 
to  any  thoughtful  merchant  how  necessary  it  is  for 
him  to  have  more  than  one  source  from  which  to  secure 
his  goods,  and  therefore  it  is  to  his  interest  to  encour- 
age and  support  competition  in  those  lines  he  has  to 
buy.' 

Similarly,  the  Wells-Whitehead  Tobacco 
Company,  when  operating  as  a  bogus  concern, 
said,  in  advertising  certain  of  its  cigarettes, 
"These  are  Independent,  Anti-Trust,  Union- 
made  Cigarettes."* 

An  interesting  example  of  co-operation 
between  a  bogus  concern  and  an  openly  con- 
trolled company  for  the  purpose  of  eliminatmg 
competition  appears  in  the  scrap  tobacco 
business  in  Cincinnati.  In  1903  the  American 
Tobacco  Company  sent  a  man  by  the  name  of 
Galbraith  to  that  city,  where  he  organized  the 
Queen  City  Tobacco  Company,  with  funds 
which  were  furnished  him  by  the  American. 
The  Queen  City  Company  engaged  in  the 
manufacture  of  scrap  tobacco  and  began  a 
campaign  of  extensive  advertising,  at  the  same 
time   marketing   its   product    at    destructive 

'  Exhibit  64,  record,  ibid.,  Vol.  V,  p.  500. 
» Exhibit  66,  *Wrf.,  p.  506. 


24 


Unfair  Competition 


I   ! 


prices.  It  was  run  at  a  very  heavy  loss  and, 
at  the  same  time,  all  comiection  with  the 
American  Tobacco  Company  was  loudly  denied. 

As  the  independent  scrap  concerns  were  not 
readily  forced  out  of  business,  another  move 
became  expedient.  At  that  time  the  Luhrman 
&  Wilbem  Tobacco  Company  was  manufactur- 
ing scrap  at  Middletown,  Ohio,  and  was  openly 
controlled  by  the  American  Tobacco  Company. 
Beginning  about  January,  1906,  the  former 
concern  rapidly  bid  up  the  price  of  tobacco 
cuttings'  from  11  to  21  cents  per  pound,  the 
latter  price  being  more  than  the  normal  net 
price  of  the  manufactured  product.  The  inde- 
pendents at  Cincinnati,  with  the  Queen  City 
Company  demoralizing  the  price  of  the  finished 
product,  and  Luhrman  &  Wilbem  bidding  up 
the  price  of  the  raw  material,  found  themselves 
between  two  fires.  Their  situation  speedily 
became  hopeless,  and  they  were  shortly  after 
acquired  by  the  American.* 

The  National  Cash  Register  Company  also 
seems  to  have  made  some  use  of  bogus  concerns. 
Late  in  1905,  or  early  in  1906,  Edgar  E.  Park 
purchased  the  Weiler  Cash  Register  Company 


III 


'  Raw  material  for  scrap  tobacco. 

"Brief  for  the  United  States,  United  States  v.   American 
Tobacco  Company,  cit.  supra,  pp.  105-6. 


Bogus  "Independent^^  Concerns         25 

and  conducted  it  for  a  time  as  an  independent 
organization,  acting  throughout  this  trans- 
action as  the  agent  of  the  National.  President 
Patterson  first  encountered  Park  at  Hot  Springs 
and  employed  him  about  1903  or  1904.  His 
salary  varied  from  twelve  thousand  to  eighteen 
thousand  dollars  a  year,  and  he  was  constantly 
in  the  employ  of  the  company  for  a  period 
of  several  years.^  His  connection  with  the 
National,  however,  was  kept  entirely  secret. 
It  was  not  known  outside  that  organization  nor 
generally  even  in  its  own  offices  where  it  was 
arranged  that  he  should  report  especially  either 
to  Chalmers*  or  to  President  Patterson. 

On  the  suggestion  of  Park  the  Universal 
Cash  Register  Company  was  organized  for  the 
purpose  of  providing  him  with  a  vehicle  for 
his  operations.3  As  the  representative  of  the 
Universal,  another  independent,  Park  ap- 
proached the  competitors  of  the  National  on 
a  friendly  basis.  He  usually  appears  to  have 
stated  that  he  was  in  the  cash-register  business 
on  a  large  scale  and  that  he  desired  to  organize 

'Lee  Counselman,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra,  Vol.  I,  pp.  593-94. 

'At  that  time  Chalmers  was  the  general  manager  of  the 
National. 

5  Hugh  Chalmers,  record,  Patterson  v.  United  States,  U.S.C.C. 
of  Appeals,  Sixth  Circuit,  Vol.  I,  pp.  469-70. 


M 


26 


Unfair  Competition 


Bogus  ^^ Independent^^  Concerns         27 


a  big  concern  by  combining  five  or  six  of  the 
independent  cash-register  companies  in  order 
to  compete  with  the  National. 

Park  worked  for  several  months  on  the  Weiler 
proposition  and  finally  made  the  purchase  with 
fimds  suppUed  by  the  National.  During  the 
negotiation  Carl  G.  Heyne,  openly  representing 
the  National  interests,  was  constantly  calling 
upon  Mr.  Weiler  and  using  his  best  efforts  to 
prevent  that  gentleman  from  suspecting  any 
connection  between  Park  and  that  company. 
As  previously  indicated,  it  was  not  made  known 
that  the  National  had  any  interest  in  the  Weiler 
concern  either  at  the  time  of  the  purchase  or  for 
many  months  thereafter.  The  Weiler  registers 
were  sold  through  jobbers  and  as  independent 
machines  in  apparent  competition  with  those 
of  the  National  Company.  Park  operated  the 
concern  and  made  reports  to  Chalmers.^ 

The  Union  Computing  Machine  Company  of 
Trenton,  New  Jersey,  was  also  purchased  by 
the  National  and  operated  as  an  independent 
under  the  name  of  the  Union  Cash  Register 
Company.  Park  officiated  in  this  transaction, 
and  the  history  of  the  purchase  is  rather  inter- 

»Hugh  Chalmers,  record,  Patterson  v.  United  States,  cU. 
supra,  Vol.  I,  pp.  477-78;  Carl  G.  Heyne,  record,  StcUe  v.  National 
Cash  Register  Company,  cit.  supra,  Vol.  II,  pp.  955-56. 


esting.  During  the  summer  of  1906  Rush 
Taggart,  the  head  of  the  Union  Company,  met 
a  man  by  the  name  of  Park,  who  had  an  office 
in  Nassau  Street.  This  gentleman  occasionally 
talked  to  Taggart  in  regard  to  the  cash  registers 
which  he  claimed  to  be  turning  out  at  his  plant 
in  Detroit.  He  also  spoke  of  a  high-grade 
French  machine  which  he  proposed  to  form  a 
company  to  market.  Several  weeks  elapsed 
before  he  spoke  to  Taggart  of  purchasing  the 
Union.  In  September  or  October,  however,  he 
stated  that  he  wished  to  secure  a  line  of  ma- 
chines of  medium  price  which  would  fit  in 
between  the  low-priced  machines  which  he  was 
manufacturing  at  Detroit  and  his  high-grade 
French  machines,  thus  completing  a  general 
line.  Taggart  finally  agreed  to  his  proposition, 
and  the  Union  was  purchased  by  Park  with 
fimds  suppKed  by  the  National.'  No  one  knew 
of  this  purchase  at  the  time  except  persons 
connected  with  the  head  offices  of  the  National, 
and  the  Union  Company  was  conducted  as  an 
independent  for  about  a  year,  and  its  registers 
were  sold  by  the  Union  agents.' 

*  Rush  Taggart,  record,  Patterson  v.  United  States,  cit.  supra. 
Vol.  I,  pp.  516-17. 

'  Hugh  Chalmers,  ibid. ,  p.  470.  It  is  doubtful  if  the  operations 
of  Park  and  the  Universal  Cash  Register  Company,  so  far  as 
they  relate  only  to  the  purchase  of  independents,  can  be  regarded 


28 


Unfair  Competition 


In  meeting  competition  in  second-hand 
machines  the  National  Cash  Register  Company 
made  frequent  use  of  bogus  concerns.  All  told, 
there  have  been  a  number  of  second-hand  cash- 
register  concerns  operating  in  the  United 
States  at  one  time  and  another.  Some  of  them 
became  very  prosperous,  and,  as  a  result,  gave 
the  National's  agents  a  considerable  amount  of 
trouble.  In  order  to  deal  with  this  competition, 
a  series  of  second-hand  stores  was  established  by 
the  National,  and  Mr.  T.  J.  Watson  was  assigned 
to  take  charge  of  the  second-hand  situation.' 
The  Watson  Cash  Register  Company  was 
organized  with  National  money  and  established 
itself  first  in  Chicago  close  to  Tuckhom  &  Com- 
pany and  the  Chicago  Cash  Register  Exchange, 
both  independent  dealers.  About  the  same 
time  a  branch  was  opened  in  Philadelphia  and 

as  unfair  unless  it  be  through  the  fact  that  in  this  way  it  was 
possible  to  acquire  information  under  false  or  misleading  pre- 
tenses in  regard  to  the  business  of  competitors  (cf.  tn/ra, 
chap.  x).  Some  may  be  inclined  to  feel  that  the  purchase  of  in- 
dependents through  the  false  representations  involved  in  Park's 
operations  was  unfair  since  it  might  have  been  impK>ssible  for  the 
National  to  have  acquired  such  concerns  op>enly.  At  the  same 
time  it  must  be  recognized  that  there  is  nothing  unfair  per  se 
in  the  purchase  of  one  organization  by  another.  This  leads  to 
the  conclusion  that  the  actual  purchases  through  Park,  though 
perhaps  sharp  business  practice,  were  not  unfair. 

'Joseph  E.  Warren,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra^  Vol.  I,  p.  436. 


Bogus  ^^ Independent'^  Concerns         29 

one  in  St.  Louis,  besides.  Watson  also  bought 
out  Fred  Brainin,  the  New  York  Cash  Register 
Exchange,  of  Fourteenth  Street,  New  York 
City,  a  leading  second-hand  dealer,  which  gave 
him  still  another  agency.  In  the  South  the 
Southern  Cash  Register  Company  was  a  most 
troublesome  second-hand  competitor.  To  as- 
sist in  the  fight  against  this  organization,  Wat- 
son bought  out  another  second-hand  concern, 
the  Atlanta  Cash  Register  Company.' 

All  these  branches  appear  to  have  been 
operated  as  independents.  In  most  cases  the 
contests  thus  inaugurated  resulted  in  the 
absorption  of  the  competing  organizations. 
It  seems  to  have  been  impossible  for  the  inde- 
pendents to  cope  with  the  situation,  and  they 
finally  gave  up  the  struggle  in  the  majority  of 
cases. 

Yet  another  interesting  example  of  bogus  con- 
cerns may  be  given.  The  Royal  Baking  Powder 
Company  is  a  large  consumer  of  starch,  and, 
in  February,  1908,  it  acquired  control  of  the 
Western  Glucose  Company.  The  latter  was 
originally  organized  for  the  purpose  of  manu- 
facturing glucose  and  other  com  products,  and 


'  Carl  G.  Heyne,  ibid.,  Vol.  II,  pp.  916-40.  According  to 
testimony,  Watson  also  operated  at  one  time  or  another  in  both 
Cleveland  and  Baltimore. 


it 


PI 


30 


Unfair  Competition 


erected  a  plant  at  Roby,  Indiana.  After  the 
purchase  its  name  was  changed  to  the  American 
Maize  Products  Company,  it  being  the  inten- 
tion of  the  Baking  Powder  Company  that  it 
should  engage  in  the  manufacture  of  glucose, 
starch,  and  other  com  products.  To  this 
the  Com  Products  Refining  Company  ob- 
jected,* and  an  agreement  was  finally  reached 
whereby  the  American  Maize  Products  Com- 
pany arranged  to  sell  its  surplus,  over  the 
requirements  of  the  Baking  Powder  Company, 
to  the  Com  Products  Refining  Company. 
Thereupon,  as  alleged  by  the  government,  the 
Com  Products  Refining  Company  employed 
Stein,  Hirsh  &  Company  of  New  York*  to  sell 
the  products  purchased  from  the  American 
Maize  Products  Company  in  competition  with 
independent  glucose  manufacturers.  Stein, 
Hirsh  &  Company,  in  pursuance  of  this  plan, 
announced  that  they  had  just  completed  a  new 

» The  grounds  of  the  objection  of  the  Cora  Products  Company 
lay,  of  course,  in  the  fact  that  it  was  engaged  in  manufacturing 
a  line  similar  to  that  of  the  Western  Glucose  Company  and  was 
not  desirous  of  other  competition  than  it  already  had.  The 
objections  according  to  the  allegations  took  the  form  of  threats 
to  embark  in  the  baking-powder  business  and  led  to  a  compromise. 
Cf.  infra,  chap.  x. 

» This  firm  is  alleged  to  have  been  engaged  in  the  business  of 
packing  and  selling  starch,  dextrines,  and  the  like,  and  to  have 
acted  as  brokers  in  the  sale  of  com  products. 


Bogus  ^^ Independent^^  Concerns         31 

glucose  factory,  and  that  they  were  prepared  to 
offer  various  com  products  at  low  prices.  It  is 
also  asserted  that  they  held  themselves  out  as 
independent  manufacturers  seeking  a  market 
for  their  goods,  although  the  glucose  was  in 
fact  that  sold  by  the  American  Maize  Products 
Company  to  the  Com  Products  Company. 
The  same  firm,  it  is  claimed,  was  directed  to 
confine  its  sales  to  the  customers  of  independent 
manufacturers,  being  strictly  forbidden  to  sell 
the  customers  of  the  Com  Products  Company. 
In  order  that  customers  and  manufacturers 
might  not  learn  the  source  of  supply,  all  ship- 
ments from  the  American  Maize  Products  Com- 
pany were  made  under  fictitious  names.^ 

The  American  Can  Company  is  another 
example  of  a  concem  using  bogus  independents. 
In  191 5  this  organization  acquired  the  American 
Stopper  Company,  which  had  been  organized 
in  1901,  and  which  manufactured  decorated  tin 
boxes.  After  the  acquisition,  as  shown  by  a 
letter  introduced  in  the  Can  record,  the  sta- 
tionery of  the  American  Stopper  Company 
carried  beneath  the  name  of  the  company  the 

*  Petition  in  equity,  United  States  v.  Corn  Products  Refining 
Company,  U.S.D.C.  for  the  Southern  District  of  New  York, 
pp.  22-24.  Cf.  also  allegations  of  bogus  concerns  in  original 
petition,  United  States  v.  Sugar  Refining  Company,  cit.  supra, 
p.  148. 


i! 


32 


Unfair  Competition 


R 


|i 


Ji 


following  statement:  "The  Largesf  Maker  of 
Tin  Boxes  Outside  of  the  Trust."' 

Conrad  Diesel  testified  that  in  1906  the  Union 
Stock  Yards  Can  Company  was  taken  over 
by  the  American  Can  Company.  Diesel  was 
at  that  time  the  assistant  general  manager  of  the 
former  organization  and  was  made  its  vice- 
president  and  general  manager  by  the  American 
Company  following  the  acquisition.  He  further 
testified  that  the  Stock  Yards  Can  Company 
was  operated  as  an  independent  company  and 
that  he  was  instructed  to  keep  secret  the  fact 
that  it  was  owned  by  the  American  Can 
Company.' 

Similarly,  it  was  charged  in  the  suit  against 
the  Central  West  Publishing  Company,  Ameri- 
can Press  Association,  and  others  that  the 
American  Press  Association  maintained  for 
many  years  in  various  cities  of  the  coimtry, 
houses  known  under  different  names  which  were 
imderstood  by  newspapers  generally  to  be  inde- 
pendent organizations.  When  the  American 
Press  Association  did  not  desire  to  sell  to  a 
particular  customer  at  a  certain  price,  or  if  it 
lost  such  a  customer  on  accoimt  of  the  prices 

»  Record,  United  States  v.  American  Can  Company^  U.S.D.C. 
for  the  District  of  Maryland,  Vol.  XII,  p.  5647. 

« Conrad  Diesel,  ibid.^  Vol.  VIII,  pp.  3805-3806. 


Bogus  "Independent'*  Concerns         33 

which  it  made,  one  of  these  houses  would  be 
instructed  to  get  the  business  at  such  a  price  as 
might  be  necessary  to  obtain  it.' 

In  the  fertilizer  industry  a  very  large  number 
of  supposedly  independent  concerns  have  been 
operated.  It  is  worth  noting  that  in  the  great 
majority  of  cases  these  concerns  have  been 
employed  by  the  larger  manufacturers.  Some 
thirteen  of  the  latter  have  controlled  forty-odd 
manufacturing  subsidiaries,  fifty-odd  selling 
subsidiaries,  and  seventy-odd  affiliated  manu- 
facturing companies,  all  of  which  were  operated 
without  disclosing  their  identity.  Two  of  the 
larger  organizations.  Swift  &  Company  and 
Baugh  &  Sons,  have  not  controlled  any  uniden- 
tified company.' 

The  operation  of  bogus  concerns  has  also 
been  alleged  in  the  case  of  at  least  one  common 

*  Petition  in  equity,  United  States  v.  Central  West  Publishing 
Company,  U.S.D.C.  for  the  Northern  District  of  Illinois,  pp.  16-17. 

'Federal  Trade  Commission,  Report  on  Fertilizer  Industry, 
chap.  viii.  In  this  industry  it  has  been  asserted  that  "the 
main  purpose"  of  the  use  of  secretly  controlled  companies  "has 
been  to  secure  the  services  of  a  larger  number  of  local  dealers 
for  the  sale  of  goods  in  a  given  locality.  Where  there  are  several 
dealers  in  a  town  each  one  desires  to  handle  a  line  of  goods  not 
handled  by  the  others.  If  aU  of  the  business  of  a  fertilizer 
company  were  done  in  its  own  name,  it  would  have,  generally 
speaking,  only  one  representative  in  a  town,  while  by  means  of 
subsidiaries  it  may  have  aU  the  dealers  as  representatives.  It  is 
claimed   that   several   representatives,  each  pushing  particular 


Ki 


1 


n 


34 


Unfair  Competition 


ii 


carrier.  The  Enterprise  Transportation  Com- 
pany was  incorporated  in  Massachusetts  about 
1905,  and  from  that  time  until  1908  it  operated 
steamers  between  New  York  and  Providence, 
Newport,  Fall  River,  and  Narragansett  Pier. 
It  had  connections  with  the  trolley  lines  which 
radiated  from  these  points,  thus  possessing 
through  routes  to  and  from  New  York  City. 
It  was  asserted  that,  for  the  purpose  of  suppress- 
ing this  competition,  the  New  York,  New 
Haven  &  Hartford  Railroad  Company  caused 
the  incorporation  in  the  state  of  Connecticut  of 
the  United  States  Transportation  Company. 
This  organization  purchased  two  steamers,  the 
"Rhode  Island"  and  the  "Connecticut,"  which 
boats  were  placed  in  operation  between  New 
York  City  and  Fall  River  as  an  independent 
line  known  as  the  Neptune  Line. 

brands,  secure  more  business  than  one  representative  handling 
all  the  brands  of  a  company"  {ibid.,  pp.  179-80). 

The  soundness  of  this  claim  is  open  to  some  question.  There 
is  nothing  to  prevent  a  manufacturer  from  allotting  his  various 
brands  one  to  each  dealer  in  a  particular  locality  so  that  each 
dealer  will  be  handling  a  line  different  from  that  of  any  other 
even  though  it  does  not  bear  the  name  of  a  different  company. 
The  value  of  brands  and  good-will  also  need  not  necessarily  be 
lost  if  the  name  of  the  controlling  company  is  published  merely 
as  a  successor  company,  the  brand  and  name  of  the  original  com- 
pany being  retained  on  the  packages. 

It  should  be  noted  that  as  a  result  of  a  series  of  conferences 
with  the  Federal  Trade  Commission  the  majority  of  the  fertilizer 
companies  have  voluntarily  agreed  to  identify  their  subsidiary 
and  affiliated  companies. 


I 


Bogus  ^^  Independent^  Concerns         35 

Furthermore,  in  1905  the  Joy  Line,  which 
was  operating  from  New  York  to  Providence 
and  Boston,  was  secretly  purchased  by  the  New 
Haven  through  the  New  England  Navigation 
Company.  During  the  succeeding  two  years 
this  control  was  continued  and  the  Joy  Line 
also  was  operated  ostensibly  as  an  independent 
company  in  competition  with  the  Enterprise 
Transportation  Company.* 

An  examination  of  this  method  of  competition 
shows  that  there  are  two  important  points  of 
difference  between  the  method  of  bogus  con- 
cerns and  the  method  of  local  price-cutting.  In 
the  first  place,  the  former  offers  facilities  for 
obtaining  information  which  are  not  afforded 
by  the  latter.  Disclaiming  all  connection  with 
a  trust,  a  bogus  organization  is  frequently 
placed  in  a  favorable  position  to  learn  the  names 
of  the  custotners  of  independent  competitors 
and  to  secure  valuable  information  regarding 
their  manufacturing  methods,  trade  secrets, 
and  business  generally.  The  information  thus 
acquired  is  transmitted  to  the  parent  organ- 
ization, thus  contributing  to  further  its  efforts 
to  destroy  independent  business. 

*  Original  petition,  United  States  v.  New  York,  New  Haven 
&•  Hartford  Railroad  Company,  U.S.D.C.  for  the  Southern  Dis- 
trict of  New  York,  pp.  70-74. 


l«  ( 


36 


Unfair  Competition 


A  very  good  illustration  of  what  may  be 
expected  of  a  bogus  concern  in  this  way  can  be 
cited  from  the  history  of  the  old  American 
Tobacco  Company.  The  Wells-Whitehead 
Tobacco  Company,  claiming  to  be  an  inde- 
pendent concern,  though  in  fact  owned  by  the 
Trust,  manufactured  cigarettes  at  Wilson, 
North  Carolina.  At  the  same  place  the  Ware- 
Kramer  Company,  a  genuine  independent,  was 
endeavoring  to  build  up  a  business.  A  letter 
to  W.  M.  Carter,  an  officer  of  the  Wells- 
Whitehead  Tobacco  Company,  from  the  vice- 
president  of  the  American  Tobacco  Company, 
and  the  accompanying  testimony,  is  as  follows: 

Dear  Sir: 

We  are  advised  that  a  car-load  of  cigarettes  has 

been  exported  to  China  by  the  Ware-Kramer  Tobacco 

Company.    If  possible  I  wish  you  would  ascertain  to 

what  port  these  goods  were  shipped  and  the  name  of 

the  consignee.    If  you  cannot  learn  the  name,  perhaps 

you  can  find  out  the  markings  on  the  cases,  as  well  as 

the  point  in  this  country  from  which  the  goods  were 

shipped  by  steamer. 

Yours  very  truly,    *    ♦    * 

In  writing  with  a  pen,  this: 

A  car-load  means  to  us  about  five  million  cigarettes. 
If  we  get  this  information  I  think  we  can  shut  off  their 
market.    You  wrote  and  sent  this  letter  ? 


Bogus  ^^  Independent^  Concerns         37 

m 

A .  Yes.  We  were  interested  in  the  British  Ameri- 
can and  any  information  we  can  give  them  we  are  going 
to  do  it.  We  are  hired  to  look  after  our  business  and 
that  is  what  we  are  going  to  do  if  we  can.' 

A  second  point  of  difference  between  the 
method  of  local  price-cutting  and  the  method 
of  bogus  concerns  lies  in  the  fact  that  the  for- 
mer is  geographically  limited  while  the  latter  is 
not  so  restricted.  Occasionally  a  bogus  inde- 
pendent concern  operates  for  a  given  period 
within  such  a  relatively  small  area  that  its 
price-cutting  is  essentially  local  in  character. 
For  example,  several  of  the  bogus  organizations 
operated  by  the  old  Standard  Oil  Company  were 
merely  peddling  concerns.  On  the  other  hand, 
this  is  not  always  or  even  usually  the  situation. 
The  bogus  concern  may  sell  over  such  a  wide  ter- 
ritory that  its  operations  can  in  no  sense  be 
regarded  as  local  in  character,  as  is  clearly  illus- 
trated by  the  case  of  the  bogus  concern  oper- 
ated by  the  Com  Products  Refining  Company. 

From  another  point  of  view,  however,  local 
price-cutting  and  bogus  concerns  are  closely 
analogous  to  one  another.  Where  either 
method  is  used,  prices  are  made  practically 
without  reference  to  cost  and  are  governed 
solely  by  the  competition  which  must  be  met. 

» Brief  for  the  United  States,  United  States  v.  American  Tobacco 
Company,  cit.  supra,  pp.  104-5. 


( 


38 


Unfair  Competition 


i 


J    f 


When  the  competition  to  be  suppressed  is 
essentially  local  in  character,  the  method  of 
bogus  concerns  would  appear  to  be  superior  to 
local  price-cutting.  A  concern  operating  a 
bogus  independent  need  not,  and  generally  does 
not,  cut  its  own  prices.  Although  this  is  the 
case,  the  trust  may  be  able,  through  the  good- 
will which  it  has  developed,  to  retain  at  least  a 
considerable  proportion  of  its  established  trade. 
Perhaps  in  exceptional  cases  it  may  retain 
practically  all  of  it.  The  latter  situation  is 
especially  likely  to  occur  when  the  bogus  organ- 
ization is  instructed,  as  is  sometimes  the  case, 
to  make  no  attempt  to  sell  anyone  except  the 
customers  of  independents,  or  when,  as  in  the 
Com  Products  Refining  Company  case  cited 
above,  it  is  forbidden  to  sell  to  the  trade  of 
the  trust  under  any  circumstances.  Under  the 
method  of  bogus  independent  concerns,  there- 
fore, the  trust  sustains  no  loss  upon  the  business 
which  it  retains  but  only  upon  that  which  it 
secures  through  the  bogus  concern  from  the 
customers  of  bona  fide  independents.  On  the 
other  hand,  when  the  method  of  local  price- 
cutting  is  used,  the  trust  is  compelled  to  sustain 
a  loss,  not  only  upon  the  business  obtained  from 
the  customers  of  independents,  but  also  upon 
that  of  its  old  customers  as  well.    Practically 


' 


Bogus  ^^ Independent^  Concerns         39 

all  of  the  latter  it  is  certain  to  retain  in  view  of 
its  lower  prices. 

The  imfairness  of  competition  conducted  by 
means  of  bogus  concerns  is  evident.  Since 
prices  are  determined  with  reference  to  destroy-* 
ing  competition  and  not  with  reference  to  costs] 
productive  and  selling  efficiency  is  a  no  morer 
efficacious  protection  than  it  is  under  local 
price-cutting.  These  qualities  alone  will  not 
enable  an  organization  to  survive.  In  addition, 
a  further  imfairness  is  to  be  found  in  this  method 
in  that  it  affords  opportimities  for  acquiring 
information  in  regard  to  the  business  of  com- 
petitors which  do  not  exist  in  case  of  local  price- 
cutting. 


I 


CHAPTER  III 
FIGHTING  INSTRUMENTS 

Closely  related  to  local  price-cutting  on  the 
one  hand  and  the  operation  of  bogus  concerns 
on  the  other  are  "fighting  instruments."  Cer- 
tain ships,  articles,  and  goods  at  one  time  and 
another  have  been  utilized  for  the  purpose  of 
destroying  competition  through  destructive 
price-cutting.  While  fightmg  ships  or  brands 
of  goods  are  thus  pushed  by  the  organizations 
using  them  m  competition  with  independent 
ships  or  goods,  yet  as  a  general  rule  such  con- 
cerns at  the  same  time  fully  maintain  their 
prices  or  charges  except  in  the  case  of  the  fight- 
ing instrument. 

Prominent  among  these  devices  are  the 
so-called  "fighting  ships''  employed  by  the 
various  steamship  conferences."  The  "fighting 
ship"  is  usually  called  into  service  when  com- 
petition is  inaugurated  in  a  trade  nominally  con- 
trolled by  conference  lines.  As  soon  as  the  new 
competitor  announces  a  sailing  date,  the  con- 
ference issues  a  circular  to  shippers  advertising 

'For  explanation  of   the  steamship   conference,  see  infra^ 
chap.  vii. 

40 


Fighting  Instruments 


41 


a  steamer  to  sail  upon  or  about  the  same  date.       | 
The  conference  circular  usually  offers  a  rate  \ 
which  is  intended  to  prevent  the  new  line  from  \ 
securing  a  cargo."  » 

An  interesting  development  of  fighting  ships 
was  found  in  the  Syndikats-Rhederei.  This 
organization  was  a  vessel-owning  corporation 
with  a  capital  of  $1,428,000,  through  which  were 
operated  the  fighting  ships  of  the  six  largest 
Hamburg  steamship  companies  engaged  in  the 
extra-European  trade.  Nominally  the  com- 
pany was  engaged  in  commercial  transportation 
enterprises,  but  primarily  it  was  a  defensive 
corporation,  the  capital  stock  of  which  was 
owned  in  the  following  proportions  by  the 
various  companies:  Hamburg- American  Line, 
$785,400;  Hamburg-South  American  Line, 
$166,600;  German  Steamship  Company,  $154,- 
700;  C.  Woerman,  $119,000;  German- Austra- 
lian Steamship  Company,  $130,900;  and  the 
German  East  Africa  Company,  $71,400.  The 
proportion  of  shares  held  was  determined 
according  to  the  tonnage  of  each  line.  Four 
relatively  small  and  inexpensive  ships  were  pur- 
chased by  the  corporation.    These  with  others 

'Proceedings  of  the  Committee  on  the  Merchant  Marine  and 
ttshertes  m  the  Investigation  of  Shipping  Combinations,  pp.  265 
^  M^it^r'  "F*    Numerous  specific  iUustrations  of  this  practice 
wiU  be  found  scattered  through  the  same  report. 


II 


•m 


42 


Unfair  Competition 


|i      t 


!^  i 


chartered  when  the  need  arose  were  "hired 
out"  to  the  six  owners  to  meet  competition 
and  to  make  it  unprofitable.  When  not  en- 
gaged in  a  "fight,"  these  steamers  found 
employment  upon  regular  time  charters." 

The  operation  of  fighting  ships,  however, 
seems  not  to  have  been  confined  to  foreign 
trade.  In  1914,  the  Manhattan  Navigation 
Company  filed  a  bill  of  complaint  against  the 
Hudson  River  Navigation  Company.  In  that 
docimient  the  claim  is  set  up  that  for  four 
years  the  latter  company  operated  two  steam- 
boats between  New  York  and  Albany  charging 
rates  of  transportation  for  both  freight  and 
passengers  which  were  much  less  than  cost. 
These  steamers,  it  is  asserted,  were  advertised  to 
sail  and  did  sail  at  or  about  the  same  hours  as 
the  steamers  of  the  Manhattan  Company,  the 
intention  being  to  bring  about  the  financial 
destruction  of  that  organization.* 

Easily  the  most  notorious  instance  of  the  use 
of  fighting  brands  was  in  the  case  of  the  plug- 

*  Report  of  Robert  P.  Skinner,  consul-general  at  Hamburg, 
Germany,  Special  Diplomatic  and  Consular  Reports  for  the  Use 
of  the  Committee  on  the  Merchant  Marine  and  Fisheries^  Dealing 
with  Methods  and  Practices  of  Steamship  Lines  Engaged  in  the 
Foreign  Carrying  Trade  of  the  United  States,  pp.  53-54. 

'  Complaint,  Manhattan  Navigation  Company  v.  Hudson  River 
Navigation  Company,  U.S.D.C.  for  the  Southern  District  of  New 
York,  p.  8. 


1 


Fighting  Instruments 


43 


tobacco  war  which  continued  roughly  from 
1894  to  1898.  In  the  years  immediately  follow- 
ing its  organization  the  old  American  Tobacco 
Company  controlled  a  relatively  small  propor- 
tion of  the  plug-tobacco  output  of  the  United 
States.  In  1894  its  total  production  was  only 
8,974,118  pounds,  and  at  least  three  companies 
were  annually  producing  a  much  greater  amoimt 
than  this.  As  early  as  1890  Liggett  &  Myers 
claimed  to  be  manufacturing  over  twenty- 
seven  million  pounds  annually.  Next  to  Lig- 
gett &  Myers  ranked  the  Lorillard  Company; 
and  in  1893  the  claimed  output  of  the  Dnun- 
mond  Tobacco  Company  of  fourteen  million 
pounds  was  far  in  excess  of  the  American's. 

The  principal  brand  which  was  selected  by 
the  American  Tobacco  Company  for  the  attack 
upon  its  competitors  was  known  as  "Battle 
Axe."  In  1 89 1  this  tobacco  sold  at  retail  for 
fifty  cents  a  poimd.  In  1894  consumers  pur- 
chased it  for  thirty  cents  and  in  the  succeeding 
year  for  a  time  the  price  to  jobbers  was  as  low 
as  thirteen  cents.  As  the  internal  revenue  tax 
at  that  time  was  six  cents  a  pound,  this  price 
left  only  seven  cents  a  pound  to  pay  for  the  leaf 
and  the  cost  of  manufacturing  and  distributing. 

As  noted  above,  the  American  sold  less  than 
nine  million  pounds  of  plug  in  1894.    Under  the 


I 


44 


Unfair  Competition 


M 

I 


pnce-cutting  attack  of  1895  it  enlarged  its  sales 
to  twenty-one  milHon  pounds,  an  increase  of, 
roughly,  130  per  cent.     Two  years  later,  ii^ 
1897,  its  sales  amounted  to  thirty-eight  million 
pounds,  an  increase  of  80  per  cent  over  its  out- 
put  in  1895,  and  of  more  than  320  per  cent  over 
that  of  1894.    In  the  four  years  from  1894  to 
1897   inclusive   the  proportion  of   the   plug- 
tobacco  output  of  the  United  States  controUed 
by  the  American  increased  from  5.6  to  20.9 
per  cent.    In  the  same  period  the  profits  of 
that  organization  declined  heavily.    In  1894 
its  net  earnings  were  approximately  five  milhon. 
In  the  next  year,  with  an  increase  of  twelve 
miUion  pounds  in  sales  of  plug  tobacco,  the 
earnings  were  approximately  one  milhon  doUars 
less.    The  accounts  of  the  company  show  that 
the  loss  on  the  manufacture  and  sale  of  plug 
tobacco  in  1896  amounted  to  over  one  miUion 
doUars  in  the  face  of  a  sales  increase  over  1894 
of  about  twenty-two  milhon  pounds.    Although 
in  1897  the  American  Tobacco  Company  sold 
nearly    thirty   milhon  pounds   more  of  plug 
than  in  1894,  its  earnings  were  approximately 
$800,000  less;   while  in  1898  the  loss  on  the 
plug-tobacco  business  alone  was  over  $800,000.' 

7  J  ^^"^^  ''•^  ?^  Commissioner  of  Corporations  on  the  Tobacco 
Industry,  Part  I,  pp.  95-98. 


Fighting  Instruments  45 

The  "knocker  machines"  of  the  National 
Cash  Register  are  a  most  mteresting  example  of 
fightmg  instruments.  A  "knocker"  "was  a 
machine  that  was  devised  and  built  and  con- 
structed for  the  purpose  of  meeting  competition 
and  placed  on  the  price  hst  under  the  head  of 
miscellaneous  and  was  only  used  in  cases  of! 
extreme  competition;  it  was  also  understood 
that  we  were  not  allowed  to  sell  this  register 
only  in  case  of  extreme  competition;  that  is, 
the  National  agents."' 

Hugh  Chalmers,  formerly  vice-president  and 
general  manager  of  the  National  Cash  Register 
Company,  gave  further  details  regarding 
"knocker"  machines: 

We  had  a  great  many  different  kinds  of  machines, 
and  when  a  competing  machine  was  placed  upon  the 
market,  we  woi^ld  discuss  which  one  of  those  machines, 
if  we  had  one,  would  be  best  suited  to  meet  that  com- 
petition. If  we  did  not  have  any  machine  to  meet 
it,  we  would  build  one  in  the  inventions  department. 
The  way  we  would  meet  competition  in  the  field  was 
that  if  a  man  was  offering  an  Ideal  register  or  a  Hall- 
wood  register,  or  a  register  of  any  other  make,  our 
salesman  would  have  one  that  would  have  all  the 
functions  that  that  machine  would  have,  that  he  would 
offer  to  sell  for  less  price  than  the  other  machine  was 
offered.    In  the  parlance  of  the  National  Cash  Register 

'Henry  F.  James,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra,  Vol.  I,  p.  56. 


I    • 


i 


PI 


i 


1 1 


46 


Unfair  Competition 


Company  such  a  machine  was  called  by  a  number.  It 
did  not  have  any  other  name  or  designation  when  I  was 
there.  I  have  heard  the  term  ** knocker"  used.  As  I 
understand  it  that  term  was  a  name  given  to  machines 
by  our  competitors  that  were  used  against  them  in 
competition.  These  machines  that  I  say  were  given 
numbers  were  machines  of  that  character.  The  price 
of  that  machine  that  we  would  send  out  in  compe- 
tition was  fixed  at  what  we  wanted  to  sell  it  for. 
Our  price  was  always  based  on  the  price  of  the 
competition  machine  and  never  upon  the  cost  of 
manufacture. 

When  I  say  that  we  built  machines  as  nearly  like 
the  competitive  machine  as  possible,  I  mean  in  appear- 
ance and  in  the  function  that  the  machine  performed. 
•  .  .  .  Our  idea  was  to  build  a  machine  to  meet  that 
competition.    I  do  not  necessarily  mean  that  we  copied 

the  mechanism  of  that  machine I  mean  that 

we  would  build  a  machine  that  had  the  same  function, 
the  same  features  on  it  that  this  other  machine  had, 
that  would  do  the  same  thing,  whether  in  the  same  way 
or  not.' 

The  United  States  government  has  alleged 
that  the  Thread  Combination  has  made  use  of 
"fighting  brands"  of  thread.  It  was  charged 
that  when  an  independent  thread  manufacturer 
had  succeeded  in  developing  an  appreciable 
business,  the  agents  of  the  combination  revived 

'  Hugh  Chalmers,  record,  Patterson  v.  UnUed  States,  cU.  supra. 
Vol.  I,  pp.  457-59. 


Fighting  Instruments 


47 


one  or  more  of  those  brands  whose  use  had  been 
discontinued.  These  revived  brands  were 
known  as  "fighting  brands"  and  they  were  sold 
at  prices  below  the  cost  of  production  solely  to 
the  customers  of  independent  organizations. 
Regular  salesmen  seldom  handled  them. 
Instead  they  were  marketed  by  special  sales 
forces  known  as  "fl)dng  squadrons"  which  were 
sent  on  the  road  by  the  combination.  Inde- 
pendent jobbers  who  refused  to  deal  with  the 
combination  were  asserted  to  have  been  at- 
tacked in  a  similar  fashion." 

The  Eastman  Kodak  Company  and  alHed 
concerns  appear  likewise  to  have  made  exten- 
sive use  of  fighting  brands  at  one  time 
and  another.  As  early  as  1898  or  1899  the 
Rives  and  Steinbach  papers  which  were 
produced  by  thfe  General  Paper  Company 
were  probably  the  most  suitable  raw  papers 
in  existence  for  the  gelatine  printing-out 
process.* 

In  the  original  exclusive  contract  for  han- 
dling these  papers  in  the  United  States  which 
was  obtained  by  the  Eastman  Kodak  Company 

» Petition  in  equity,  United  States  v.  American  Thread  Com- 
pany et  al.,  U.S.D.C.  for  the  District  of  New  Jersey,  p.  14.  These 
practices  were  enjoined  by  the  decree  of  the  court  entered  June  2, 
19 14. 

» For  an  explanation  of  this  fact  cf.  infra,  chap.  viii. 


IT     li 


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48 


Unfair  Competition 


there  appeared  the  following  clause,  known  as 
the  fighting-brand  clause: 

In  case  any  printing-out  paper  sensitized  on  other 
raw  paper  than  that  furnished  by  the  General  Paper 
Co.  should  make  it  [sic]  appearance  in  said  territory, 
and  in  order  to  drive  it  out  of  the  market  it  becomes 
necessary  for  the  Kodak  Co.  to  reduce  the  prices 
of  its  paper,  then  the  General  Paper  Co.  shall, 
during  not  more  than  six  months,  allow  to  the  Kodak 
Co.  a  proportionate  rebate  on  the  price  of  its 
plain  and  baryta-coated  papers  used  in  the  manu- 
facture of  the  printing-out  paper  sold  at  such  reduced 
price.' 

The  year  after  the  above  contract  was  made 
Eastman  wrote  to  Paul  Puttman,  at  one  time 
representing  Steinbach  &  Company  and  later 
the  General  Paper  Company,  suggesting  that 
the  General  Aristo  Company*  maintain  three 
fighting  brands  of  photographic  paper:  one 
for  gelatine  paper,  one  for  collodion  paper,  and 
one  for  gelatine  developing  paper.    Eastman 

'  General  Paper  Company,  Steinbach  &  Company,  Blanchet 
Frdres  &  Kleber,  and  Eastman  Kodak  Company,  terms  of  sale, 
October  20,  1898,  re  Raw-Paper  Government  Exhibit  14,  record^ 
United  Slates  v.  Eastman  Kodak  Company,  U.S.D.C.  for  the 
Western  District  of  New  York,  Vol.  V,  p.  2048.  For  further 
details  in  regard  to  this  contract  cf .  m/ra,  chap.  viii. 

» The  General  Aristo  Company  was  the  branch  of  the  Photo- 
graphic-Supplies Combination  which  at  that  time  marketed 
paper. 


Fighting  Instruments 


49 


testified  that  he  was  not  sure  "whether  we 
adopted  them  in  each  of  the  three  lines,  but  we 
did  adopt  them  in  some  of  the  lines  at  any 
rate."' 

Kresko  paper  marketed  by  the  Eastman 
Kodak  Company  appears  to  have  been  used 
as  a  fighting  brand  about  1900.  In  a  letter  to 
the  Morrison  Photographic  Supply  Company  we 
find  the  following  paragraph: 

Would  state  that  Kresko  paper  in  [sic]  not  to  be  sold 
over  the  counter  indiscriminately,  but  is  to  be  sold  by 
you  only  to  professional  photographers  located  in 
Pittsburg,  and  to  such  other  photographers  as  we  have 
given  you  special  authorization  to  sell  to.  The  under- 
standing is  that  we  desire  to  limit  the  sale  of  Kresko 
paper  as  much  as  possible;  consequently  you  should 
not  sell  same  to  anyone  not  located  in  territory  men- 
tioned in  our  special  authorization  letter  of  May  17, 
1900,  unless  you  have'informed  us  that  such  photog- 
rapher is  using  paper  other  than  that  of  General 
Aristo  Company  manufacture,  and  for  this  reason  it 
becomes  necessary  to  sell  Kresko  to  them  in  order  to 
hold  their  patronage.  It  would  manifestly  be  a  mis- 
take to  sell  Kresko  to  a  photographer  who  is  regularly 
using  Solio  paper.* 


r; 


111 


» George  Eastman,  record,  United  States  v.  Eastman  Kodak 
Company,  cit.  supra.  Vol.  Ill,  pp.  1286-87. 

'The  Eastman  Kodak  Company  to  Morrison  Photographic 
Supply  Company,  April  23,  1901,  Government  Exhibit,  270, 
record,  ibid.,  Vol.  VI,  p.  3208. 


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Unfair  Competition 


The  "statement  of  claim  for  loss  on  sales  of 
'fighting  brand'  papers"  which  was  annexed  to 
the  1910  contract  between  the  General  Paper 
Company  and  the  Eastman  Kodak  Company 
was  certified  by  Price,  Waterhouse  &  Company 
and  showed  a  total  loss  for  the  three  years 
1907,  1908,  and  1909  of  $327,596.40.' 

There  are  points  of  close  resemblance  in  the 
use  of  fighting  instruments  on  the  one  hand 
and  in  the  employment  of  both  local  price- 
cutting  and  bogus  independent  concerns  on  the 
other.  Comparing  first,  for  example,  the 
method  of  local  price-cutting  with  the  method 
of  fighting  instruments,  it  is  clear  that  the  two 
are  invariably  alike  in  that  prices  are  made  or 
determined,  not  with  reference  to  production 
and  selling  costs,  but  solely  in  order  to  destroy 
competition.  Secondly,  it  is  also  evident  that 
in  frequent  instances  the  use  of  fighting  devices 
may  be  confined  to  a  particular  locaUty  or 
locahties.  Thirdly,  fighting  instnmients  may, 
if  desired,  be  offered  to  anyone  within  the 
locaUty  regardless  of  whether  the  purchaser  is 
a  customer  of  the  concern  marketing  the 
particular  device  or  of  an  independent  com- 

« General  Paper  Company,  Steinbach  &  Company,  and  East- 
man Kodak  Company,  June  30,  1910,  Government  Exhibit  139, 
record,  United  States  v.  Eastman  Kodak  Company,  cit.  supra. 
Vol.  V,  p.  241 1. 


Fighting  Instruments 


SI 


peting  organization.  Whenever  a  concern  sells 
under  these  three  conditions,  there  is  no  essen- 
tial distinction  between  local  price-cutting  and 
fighting  mstruments.  In  such  cases,  therefore, 
the  latter  method  must  be  condemned  as  unfair 
upon  the  same  grounds  as  the  former. 

Fighting  instruments,  however,  are  not 
always  or  perhaps  even  usually  restricted  to 
local  use.  As  is  shown  by  the  Thread  and 
Tobacco  cases  above,  they  may  be,  and  have 
been,  used  practically  without  territorial  restric- 
tion. It  is  also  unnecessary  that  a  fighting 
instrument  should  be  offered  to  the  trade  gen- 
erally, as  is  usually  the  case  under  local  price- 
cutting.  Instead  it  may  be  presented  for  sale 
to  customers  of  independent  competing  organ- 
izations only,  as  in  the  arrangements  of  the 
Thread  Combination.  In  the  latter  case  the 
manner  of  compensating  the  losses  incurred 
differs  somewhat  from  that  under  local  price- 
cutting.  In  the  use  of  the  latter  method  the 
loss  sustained  may  be  made  up  by  the  higher 
prices  charged  in  non-competitive  or  nearly 
non-competitive  localities.  In  the  use  of  fight- 
ing brands  the  loss  may  conceivably  be  com- 
pensated by  the  prices  exacted  on  similar 
lines  sold  to  regular  customers  who  do  not  pur- 
chase of  competitors  and  to  whom  fighting 


!] 


s» 


Unfair  Competition 


\  F 


{ 


brands  are  not  usually  offered.  Or  again,  the 
loss  may  be  offset  by  the  prices  charged  for 
other  manufactured  lines  upon  which  no  price- 
cutting  campaign  is  being  conducted/ 

The  differences  which  may  exist  between 
local  price-cutting  and  fighting  instruments, 
however,  in  no  sense  render  the  latter  practice 
fair.  An  efficient  organization  may  be  in  little 
or  no  better  position  to  survive  an  extensive 
fighting-brand  campaign  than  to  outlive  a  severe 
attack  of  local  price-cutting.  Measured  by  the 
criterion  of  efficiency  which  has  been  laid  down, 
therefore,  fighting  brands  are  open  to  equal 
condemnation  with  local  price-cutting. 

The  resemblance  between  the  method  of 
bogus  independent  concerns  and  the  method  of 
fighting  instnmients  may  likewise  be  a  close 
one.  As  was  indicated  in  the  preceding  chap- 
ter, the  Royal  Incandescent  Lamp  Company, 
acting  as  an  independent,  marketed  the  Regal 
lamp,  the  members  of  the  combination  paying 
the  requisite  expenses.  Clearly  the  Royal 
Incandescent  Lamp  Company  was  a  bogus 
independent  concern,  and  it  is  equally  evident 
that  the  Regal  lamp  should  be  regarded  as  a 
fighting  brand.     By  virtue  of  the  usual  purpose 

'  It  is  of  course  obvious  that  the  losses  on  fighting  instruments 
may  not  always  be  fully  compensated. 


Fighting  Instruments 


S3 


of  a  bogus  concern,  goods  marketed  by  it  may 
generally  be  regarded  as  fighting  brands.  As  a 
rule,  where  either  bogus  concerns  or  fighting 
brands  are  used  prices  are  made  without  refer- 
ence to  costs  and  goods  are  sold  solely  for  the 
purpose  of  suppressing  and  destroying  compe- 
tition.' It  is,  in  consequence,  necessary  to  re- 
gard as  an  integral  part  of  the  operation  of  the 
bogus  concerns  brands  pushed  through  such  an 
agency  at  cut  prices  in  order  to  destroy  com- 
petition. 

From  whatever  angle  they  may  be  viewed, 
therefore,  fighting  instruments  must  be  regarded 
as  imfair  competition.  Their  use  nullifies  the 
productive  and  selling  efficiency  of  other  organ- 
izations and  makes  possible  their  destruction 
in  spite  of  these  qualities. 

'Some  few  exceptions  may  be  found  in  the  case  of  bogus 
concerns.  Cf.  preceding  chapter  regarding  fertilizer  business 
where  a  different  purpose  seems  to  have  been  involved. 


I. 

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5 

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" 


CHAPTER  IV 

CONDITIONAL  REQUIREMENTS  ("TYING" 

CLAUSES) 

Upon  the  processes  of  producing  and  market- 
ing commodities  many  organizations  have,  with 
varying  degrees  of  success,  imposed  certain 
conditional  requirements.  Such  arrangements 
appear  in  considerable  variety,  and  they  are 
perhaps  the  most  interesting  of  any  of  the 
methods  of  unfair  competition.  A  concern 
may  require: 

A.  The  purchase  of  commodities  for  which  the 
patents  have  expired  as  a  condition  of  purchasing 
patented  commodities. 

B.  The  use  of  commodities  for  which  the  patents 
have  expired  as  a  condition  of  the  lease  or  use  of 
patented  commodities. 

C.  The  use  of  unpatented  commodities  as  a  condi- 
tion of  the  lease  or  use  of  patented  commodities. 

D.  The  leasing  and  use  of  one  or  more  patented 
commodities  as  a  condition  of  the  lease  and  use  of  other 
patented  conmiodities. 

E.  The  handling  of  new  lines  of  commodities  as 
a  condition  of  continuing  to  handle  old  hnes. 

F.  The  purchase  of  certain  commodities  as  a  con- 
dition of  the  purchase  of  other  commodities. 

54 


1      !: 


Conditional  Requirements 


5S 


G.  The  use  of  certain  patented  conmiodities  as 
a  condition  of  the  lease  of  certain  other  unpatented 
commodities. 

It  will  probably  be  evident  to  the  reader  that 
these  seven  classes  of  conditional  requirements 
by  no  means  exhaust  the  possibilities  of  such 
arrangements.  Clearly  an  ahnost  indefinite 
number  of  such  conditions  might  be  devised, 
each  bemg  designed  to  meet  the  exigencies  of 
a  particular  situation.  The  seven  enumerated, 
however,  are  probably  sufficient  to  illustrate 
satisfactorily  the  unfairness  of  practically  all 
such  arrangements. 

For  purposes  of  discussion  they  may  be 
divided  into  three  groups  determined  with  refer- 
ence to  the  factor  which  enables  an  organ- 
ization to  impose  such  restrictions. 

I.  Conditions  A,  B,  and  C  are  based  on  the 
fact  that  in  each  case  the  concern  imposing  the 
restriction  possesses  a  patent  monopoly  in  a 
single  article.  ^^~     ^    "^ 

II.  Condition  D  is  based  upon  the  fact  that 
the  concern  making  the  requirement  possesses 
a  patent  monopoly  in  two  or  more  articles. 

III.  Conditions  E,  F,  and  G  are  based  upon 
the  fact  that  the  concern  making  them  possesses 
an  extensive  or  predominant  control  of  certain 
articles. 


] 


s^ 


Unfair  Competition 


w 


A.  By  a  series  of  contracts  made  in  1906  and 
1909  with  foreign  parties  the  Electric  Lamp 
Combination  acquired  the  exclusive  rights  for 
the  United  States  to  the  use  of  the  inventions, 
patents,  and  applications  covering  tungsten- 
and  tantalum-filament  lamps.    The  advantages 
of  lamps  of  these  types — economy  in  the  cost  of 
service,  etc. — are  too  well  known  to  require 
enumeration.    Necessarily  they  compete  with 
carbon-filament  lamps,  and  in  order  to  meet  the 
demands  of  the  trade,  jobbers  and  dealers  were 
practically  compelled  to  carry  stocks  of  all  three 
types  of  lamps.    The  combination  then  offered 
a  contract  to  the  trade  which  provided  for  the 
sale  of  tungsten-  and  tantalum-filament  lamps 
to  such  dealers  and  jobbers  as  would  also  pur- 
chase from  it  and  its  subsidiaries  all  of  the 
carbon-filament  lamps  which  they  required. 
The  patents  upon  carbon-filament  lamps  had 
expired  in  1894.    The  contract,  therefore,  ap- 
pears unquestionably  to  have  been  an  attempt 
to  compel  dealers  and  jobbers  to  purchase 
solely  from  the  combination  certain  articles 
which    might  otherwise    have    been    secured 
from  outside  organizations.' 

'Petition,  United  States  v.  General  Electric  Company,  cit. 
supra,  pp.  lo-i I,  27-32.  It  should  be  noted  that  the  final  decree 
of  the  court  in  this  case  forbade  the  continuation  of  this  practice. 


Conditional  Requirements 


57 


B.  The  leases  of  the  United  Shoe  Machinery 
Company  have  quite  generally  contained  what 
are  known  as  "tying"  clauses.  Such  clauses 
require  that  certain  machines  shall  be  used  only 
in  connection  or  in  conjunction  with  certain 
other  designated  machines.  Sometimes,  as  will 
appear  later,  they  have  tied  together  two 
patented  machines,  making  their  simultaneous 
leasing  and  utilization  necessary.  In  certain 
other  cases  the  leases  in  question  have  tied  to 
patented  machines  others  upon  which  the 
patents  have  expired.'  The  effect  of  the  latter 
type  of  condition  is  well  described  by  Mr.  Jones : 

In  1900,  at  the  time  of  the  original  controversy  over 
these  leases,  most  of  the  machines  were  protected  by 

*  The  following  is  an  illustration  of  a  Shoe  Machinery  tying 
clause:  "The  leased  machinery  shall  be  used  only  in  the  manu- 
facture of  boots,  shoes  and  other  footwear  made  by  the  lessee 
known  in  the  trade  as  *  Goodyear  welts,'  which  have  been  or  are 
to  be  welted  wholly  by  Goodyear  welt  and  turn  shoe  machines 
or  Goodyear  universal  inseam  sewing  machines  held  by  the 
lessee  under  lease  from  the  lessor,  and  the  soles  of  which  have 
been  or  are  attached  to  their  welts  wholly  by  Goodyear  outsole 
rapid  lockstitch  machines  held  by  the  lessee  under  lease  from 
the  lessor,  or  in  the  manufacture  of  boots,  shoes,  or  other  foot- 
wear made  by  the  lessee  known  in  the  trade  as  *  Goodyear  turns,' 
the  soles  of  which  have  been  or  are  to  be  attached  to  their  uppers 
wholly  by  Goodyear  welt  and  turn  shoe  machines  or  Goodyear 
universal  inseam  sewing  machines  held  by  the  lessee  under  lease 
from  the  lessor Lease  and  license  No.  5196  K." — (Good- 
year Department)  Sewing  and  Stitching  Machines  between  the 
United  Shoe  Machinery  Company  and  R.  H.  Long  Shoe  Manu- 
facturing Company  in  Hearings  before  the  House  Committee 
on  the  Judiciary,  Trust  Legislation  Serial  No.  2,  Patent  Legis- 
lation Serial>No.  i,  191 2,  p.  140. 


I  ^1 


'fi 


%\ 


S8 


Unfair  Competition 


I 


ll  I  I' 


I'  I  f 


I 


' 


yaUd  patents,  and  we  were  advised  by  our  counsel  that 
if  we  desired  to  use  their  patented  machines  we  should 
probably  have  to  do  so  on  whatever  terms  they  saw 
fit  to  impose;  but  these  important  patents  were  near- 
mg  the  day  of  their  expiration,  and  at  the  present  time 
(1912)  a  very  large  proportion  of  the  important  basic 
patents  have  expired,  and  but  for  the  restrictions 
miposed  upon  us  by  their  leasing  system  we  should 
today  be  exercising  our  undoubted  right  to  use,  without 
royalty,  a  large  part  of  the  machinery  now  employed.' 

The  Crown  Cork  and  Seal  Company,  of  Balti- 
more, manufactures  more  tin  caps  for  bottles 
than  does  any  other  concern  in  the  United 
States,  and  probably  more  than  any  other  con- 
cern in  the  world.'    The  same  company  also 
controls  patents  upon  a  certain  device  known 
as  the  Jumbo  capping  machine,  which  is  used  to 
put  the  caps  on  bottles.    None  of  the  machines 
are  sold,  but  they  are  leased  to  brewing  and 
bottling  establishments  under  agreements  which 
provide,  among  other  conditions,  that  the  "said 
machine  shall  be  used  only  in  connection  with 
crown  corks  purchased  by  the  lessee  directly 
from  the  lessor.  "^     As  the  patents  upon  the 

« Charles  H.  Jones,  Hearings  before  the  House  Committee 
on  the  Judiciary,  Trust  Legislation  Serial  No.  2,  Patent  Legisla- 
tion Serial  No.  i,  1912,  p.  65. 

» Alexander  Whiteside,  ibid.,  pp.  163-64. 

» Lease  and  Ucense  agreement,  ibid.,  p.  164.  Reprinted  in  the 
writer's  Industrial  Combinations  and  Trusts,  pp.  266  flf. 


Conditional  Requirements 


59 


caps  expired  years  ago,  the  lease  attempts  to 
compel  bottlers  to  purchase  all  caps  from  the 
Crown  Cork  and  Seal  Company. 

C.  In  the  nineties  the  Heaton  Peninsular 
Button  Fastener  Company  controlled  letters 
patent  granted  for  improvements  in  button- 
fastening  machines.  These  machines  were  sold 
outright  with  the  condition  attached  that 
they  should  be  used  only  with  button  fasteners 
made  and  sold  by  that  company  and  known  as 
"Peninsular  Fasteners."  This  condition  was 
to  be  found  upon  the  bill  of  sale  and  also  upon 
tags  and  caution  plates  which  were  attached 
to  the  machine.  In  1890  a  man  by  the  name  of 
Dick  began  the  manufacture  of  a  new  metallic 
fastener  capable  of  and  intended  for  use  upon 
the  Peninsular  machines.  By  solicitation  and 
advertisement  he  secured  many  customers  and 
began  to  build  up  a  considerable  business;  but 
the  Button  Fastener  Company  quickly  brought 
suit  against  him  and  secured  an  injimction  re- 
straining the  marketing  of  the  device.* 

In  considering  the  reasons  for  regarding  the 
conditions  of  the  first  group  as  unfair  those  of 
types Aand  B  maybe  distinguished  from  type  C' 

^Heaton  Peninsular  Button  Fastener  Company  v.  Dick,  55 
Fed.  23. 

'  It  is  also  true  that  on  grounds  of  legality  A  on  the  one  hand 
may  be  distinguished  from  B  and  C  on  the  other.    In  the  decree 


i  i 


6o 


Unfair  Competition 


I 


I 


The  two  former  apply  to  articles  upon  which  the 
patents  have  expired;  the  latter  to  articles  un- 
patentable and  unpatented.  While  both  are 
unfair,  the  reasons  for  so  regarding  them  are  not 
identical.  As  regards  A  and  B,  the  theory 
which  underUes  the  grant  of  monopoly  in  a 
patent  is,  of  course,  that  human  progess  is  pro- 
moted by  the  gift  to  inventors  for  a  term  of 
years  of  the  exclusive  property  in  their  mven- 
tions.  At  the  end  of  this  period,  however,  it 
is  intended  that  the  inventions  shall  become 
the  property  of  the  pubhc.    For  this  reason 

against  the  Electric  Lamp  Combination  (A  above)  the  defendants 
were  "perpetuaUy  enjoined  and   restrained   from  making  or 
enforcmg  any  contracts,  arrangements,  agreements  or  require- 
ments with  dealers,  jobbers  and  consumers,  who  buy 
either  tantalum  filament,  tungsten  filament,  metalized  carbon 
filament  or  ordinary  carbon  filament  lamps,  or  any  of  them   by 
which  such  dealers,  jobbers  and  consumers  are  compeUed  to 
purchase  aU  their  ordinary  carbon  filament  lamps  ....  as  a 
condition  to  obtaining  such  other  types  of  lamps,  or  any  of  them" 
(final  decree.  United  StaUs  v.  General  Electric  Company,  cit.  supra 
p.  7).    On  the  other  hand,  the  Shoe  Machinery,  Crown  Cork  and 
Button  Fastener  conditions  (B  and  C  above)  are  probably  aU  three 
legal  under  the  decision  in  the  Button  Fastener  case  (55  Fed  23) 
and  the  later  decision  in  Henry  v.  Dick  (224  U.S.  i),  bemg  but 
vahd  use  restnctions  imposed  upon  patented  articles.    There  is  no 
mconsistency  m  these  two  divergent  legal  views.    Restrictions 
upon  the  manner  m  which  a  patented  article  may  be  used  have 
been  repeatedly  held  vahd,  and  this  is  the  prevaiUng  legal  view 
It  is  evident  that  in  the  Electric  Lamp  case  no  use  restrictions 
existed.    Consequently  the  condition  in  that  case  could  not  be 
upheld  upon  the  same  legal  ground  as  the  condirions  imposed  by 
these  other  organizations. 


Conditional  Requirements 


61 


inventors  are  required  to  give  their  specifica- 
tions  to  the  patent  office.  When  the  term  of 
the  patent  expires,  the  commimity  thereupon 
receives  the  benefit  of  the  invention  through  a 
complete  knowledge  of  all  its  details.  For  the 
term  of  his  patent  the  inventor  receives  the 
profits  from  sales  or  royalties  from  leases  or 
similar  arrangements.  At  its  expiration  he 
ceases  to  be  entitled  to  further  emoluments. 
The  community  then  reaps  the  advantages  of 
the  device  free  from  any  further  burden  arising 
from  the  right  and  property  of  the  inventor  in 
his  mvention. 

Theoretically  anyone  may  begin  the  pro- 
duction of  an  article  previously  patented  as 
soon  as  the  term  of  the  patent  expires.  Ac- 
tually, however,  no  one  may  be  able  to  do  so. 
Conditional  requirements  may  so  destroy  the 
market  that  even  if  the  goods  were  produced 
there  would  be  no  customers  to  purchase. 
This  precise  situation  seems  to  have  developed 
through  the  "tying"  clauses  of  the  Shoe 
Machinery  Company  appl3ang  to  released 
patents.  Upon  this  point  the  following  bit  of 
testimony  is  worth  quotation: 

Mr.  Rucker:  Was  there  anything  to  prevent  other 
manufacturers  from  manufacturing  each  one  of  those 
machines  that  they  designate  "essential"? 


11 


/ 


I 


I  ^ 


63 


Unfair  Competition 


Mr.  Jones:  Such  machines  as  embody  the  expired 
patents  have  not  been  manufactured,  for  the  reason 
that  in  this  country  no  one  could  be  found  to  purchase 
them.  .  .  .  .' 

A  manufacturer  who  has  begun  the  pro- 
duction of  goods  upon  which  the  patents  have 
expired  ought,  under  previous  assumptions,  to 
have  a  free  and  open  market  for  those  goods. 
If  this  is  denied  him,  the  competition  is  no  less 
unfair  than  if  the  market  is  entirely  dosed,  as 
in  the  Shoe  Machinery  case.    If  the  market  is 
not  a  free  and  open  one,  the  manufacturer's 
productive  efficiency,  however  great  it  may  be, 
is  of  no  advantage  to  him.    His  sales  are  and 
will  continue  to  be  restricted,  even  though  the 
same  article  produced  by  his  competitors  is  both 
more  costly  and  of  a  poorer  quality.    As  a  re- 
sult he  may  be  compelled  to  discontinue  busi- 
ness, either  because  of  its  lack  of  profit  or 
through  the  prospect  of  bankruptcy. 

The  conditional  requirements  of  both  the 
Electric  Lamp  Company  and  the  Crown  Cork 
and  Seal  Company  deny  an  open  market  to 
competitors  manufacturing  goods  for  which  the 
patents  have  expired.  This  fact  is  well  shown 
by  the  testimony  of  Mr.   Whiteside  of  the 

'Hearings  before  the  House  Committee  on  the  Judiciary 
Trust  Legislation  Serial  No.  2,  Patent  LegislaUon  Serial  No  i' 
1912,  p.  71.    Italics  are  the  writer's.  * 


i 


Conditional  Requirements 


63 


United  Cork  and  Seal  Company,  an  organ- 
ization which  manufactures  bottle  caps  prac- 
tically identical  with  those  of  the  Crown  Cork 
and  Seal  Company. 

Mr.  WmxEsmE:  We  do  not  object  to  their  selling, 
leasing,  or  licensing  their  Jumbo  capping  machines. 
That  is  the  only  practical  capping  machine  on  the 
market  that  is  fitted  for  use  in  large  establishments 
where  a  good  deal  of  bottling  is  done.  We  do  not 
mind  their  marketing  that  in  any  fair  way  they  want 
to  and  getting  a  good,  big  profit,  but  we  do  object  to 
their  marketing  it  and  saying  that  a  brewer  who  takes 
it  cannot  use  on  it  any  caps  except  those  manufactured 
and  sold  by  the  Crown  Cork  &  Seal  Co. 

Mr.  Floyd:  Which  is  not  a  patented  cap  ? 

Mr.  WmiEsmE:  Which  is  not  a  patented  cap. 
....  It'  will  be  decided  so  that  the  Crown  Cork  and 

Seal  Co can  sell  their  Jumbo  capping  machine 

and  prevent  the  use  of  any  caps  but  theirs  on  it; 
and  it  is  perfectly  easy  to  see  that  the  risks  which  a 
brewer  who  has  one  of  those  Jumbo  capping  machines 
incurs  in  buying  caps  from  us  or  anybody  else  who  use 
them  on  that  machine  are  so  great  that,  practically 
speaking,  he  will  not  buy,  if  ^  you  can  find  a  brewer  who 
is  willing  to  disregard  the  obligation  of  the  contract 
which  by  force  or  otherwise  he  has  entered  into.  Some 
brewers  have  sufliciently  high  moral  standards  to  say, 
"We  have  made  this  contract,  and  whether  we  like 

*  Refers  to  Dick  case.    See  infra. 

'This  is  probably  either  a  misprint  or  careless  statement. 
It  should  read  "unless."  The  jumbled  wording  is  as  in  the 
original. 


r 


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..  i 


t 


L 


64 


Unfair  Competition 


it  or  not  we  will  stick  to  it'';  but  even  if  they  have  not 
as  high  moral  standards  as  that,  practically  they  won't 
buy  any  great  quantities  from  us  or  anybody  else.' 

In  his  dissenting  opinion  in  the  case  of  Henry 
V.  Dicky  Chief  Justice  White  had  occasion  to 
discuss  a  condition  requiring  the  use  of  un- 
patented articles— ink  stencils,  etc.,  made  by 
the  A.  B.  Dick  Company  as  a  condition  of  the 
use  of  that  company's  stencil  duplicating  ma- 
chines.=»  His  succinct  statement,  in  the  writer's 
opinion,  clearly  established  the  basis  for  re- 
garding all  conditions  of  the  class  C  type  as 
unfair: 

The  patent  was  solely  upon  the  mechanism  which 
when  operated  was  capable  of  producing  certain 
results.  A  patent  for  this  mechanism  was  not  con- 
nected in  any  way  with  the  materials  to  be  used  in  oper- 
ating the  machine,  and  certainly  the  right  protected 
by  the  patent  was  not  a  right  to  use  the  mechanism 

with  any  particular  ....  operative  materials 

It  cannot  be  said  that  the  restriction  concerning  the 
use  of  the  materials  was  a  restriction  upon  the  use  of  the 

'Hearings  before  the  House  Committee  on  the  Judiciary, 
Trust  Legislation  Serial  No.  2,  Patent  Legislation  Serial  No.  i* 
191 2,  pp.  170-71. 

*  The  only  difference  between  the  bottle-cap  case  on  the  one 
hand  and  the  Dick  and  Button  Fastener  cases  on  the  other  is 
that  in  the  former  case  the  use  restriction  is  applied  to  articles 
once  patented  upon  which  the  patents  had  expired,  while  in 
the  two  latter  cases  it  related  to  unpatented  and  unpatentable 
articles. 


II 


Conditional  Requirements 


6s 


machine  protected  by  the  patent  law.  When  I  say 
it  cannot  be  said,  I  mean  that  it  cannot  be  so  done  in 
reason,  since  the  inevitable  result  of  so  doing  would 
be  to  declare  that  the  patent  protected  a  use  which  it 
did  not  embrace.* 

Since  the  accepted  theory  of  monopoly  in 
a  patent  does  not  and  should  not  embrace 
a  monopoly  of  unpatented  and  unpatentable 
articles,  it  follows  that  conditions  designed  to 
effect  this  result  are  inconsistent  with  fair  com- 
petition. Their  effect  upon  both  actual  and 
potential  competition  tends  to  be  precisely  the 
same  as  that  of  conditions  applying  to  articles 
upon  which  the  patents  have  expired  (A  and  B, 
above).  The  results  of  restrictions  of  this  latter 
type  were  well  described  above  in  the  testimony 
of  Mr.  Jones  and  Mr.  Whiteside,  and  the  state- 
ments of  these  gentlemen  are  equally  applicable 
for  illustrating  the  effect  of  conditions  involv- 
ing articles  which  are  unpatented  and  impat- 
entable. 

The  Button  Fastener  and  Dick  decisions 
may  be  regarded  as  authority  for  the  legality 
of  me  conditions  without  reference  to  whether 
they  involve  articles  upon  which  the  patents 
have  expired  or  articles  unpatented  or  unpatent- 
able.   From  an  economic  standpoint  a  decision 


» 224  U.S.  I.    Cf.  52-53. 


M 


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till 


: 


, 


t     "f 

I  I 
I 


66 


Unfair  Competition 


upholding  these  luifair  conditions  cannot  be 
regarded  as  sound  no  matter  how  consistent 
with  judicial  precedents  it  may  be.  As  the 
writer  remarked  in  his  original  study  of  unfair 
competition,  one  might  well  doubt  that  these 
cases  would  stand  the  test  of  time.  Certainly 
it  was  reasonable  to  suppose  that  if  a  change 
was  not  made  through  new  judicial  interpre- 
tation it  would  sooner  or  later  occur  by  way 
of  new  legislation.^ 

D.  As  previously  stated,  the  "tying"  clauses 
of  the  Shoe  Machinery  Company  have  another 
aspect  than  the  one  just  discussed.  They  may 
require  that  a  given  patented  machine  must  be 
leased  and  used  in  conjunction  with  the  lease 
and  use  of  another  patented  machine. 

The  theory  of  patents  presumes  that  an 
inventor  deserves  a  reward  for  the  benefits 
which  he  is  supposed  to  have  conferred  upon 
society.  It  is  assumed  that  during  the  life  of 
the  patent  the  inventor  will  derive  sufficient 
returns  to  compensate  him  for  his  service.    He 

» Section  5  of  the  Trade  Commission  Act  and  section  3  of  the 
Clayton  Act  would  appear  to  have  overruled  these  decisions. 
The  Trade  Commission  has,  smce  this  was  first  written,  brought 
a  complaint  agamst  the  Dick  Mimeograph  Company  under  the 
latter. 


Conditional  Requirements 


67 


may  secure  his  remuneration  in  a  variety  of 
ways.  He  may,  for  example,  manufacture  his 
patented  device  and  lease  or  sell  it.  He  may 
dispose  of  his  patent  outright  for  a  definite 
sum  or  may  sell  it  in  return  for  a  fixed  royalty 
per  unit  manufactured.  But  whatever  method 
he  may  employ,  the  essential  point  is  that  he 
is  entitled  to  secure  such  profit  from  his  inven- 
tion as  may  be  obtainable. 

Yet  the  right  to  derive  profit  from  an  inven- 
tion is  in  no  sense  an  absolute  right.  Another 
individual  may  invent  a  patentable  device  to 
perform  the  same  work  as  the  device  of  the 
first  inventor.  In  this  case  the  only  economic 
right  which  the  prior  inventor  has  to  profits  is 
such  as  is  based  upon  the  free  competition  of 
the  two  articles.  Society  in  the  granting  of  the 
patents  has  adjudged  that  each  inventor  is 
deserving  of  reward.  The  second  inventor  is 
entitled  to  derive  profit  from  his  device  as  well 
as  is  the  first  from  his.  Is  it  not  clear  that  if 
the  first  inventor  uses  any  method  to  close  or 
restrict  the  market  of  the  second  such  an 
arrangement  must  be  regarded  as  unfair  ? 

The  apphcation  of  these  generalizations  to 
the  case  in  point  is  evident.  Assimae  that,  in 
place  of  one  of  the  "tied''  machines  of  the 
United  Shoe  Machinery  Company,  a  new  piece 


•  ! 


.      11 

:! 


li 


I 

S'1 


t 


' 


I 


68 


Unfair  Competition 


of  mechanism  is  invented  by  an  individual 
**X."    Assiune  that  the  new  machine  consti- 
tutes no  infringement  of  the  United's  patents,  is 
patentable,  and  is  patented.    Assume,  thirdly, 
that  the  eflBciency  of  the  new  machiae  is  twice 
that  of  the  United's  machine,  the  work  of  which 
it  is  designed  to  perform.    As  patentee,  X  is 
entitled  on  the  basis  of  the  previous  assumptions 
to  such  profits  as  his  device  may  earn  in  free 
and  open  competition  with  the  similar  machine 
of  the  Shoe  Machinery  Company.    In  such 
a  situation  the  relative  productive  efficiency  of 
the  two  machines  should  determine  to  a  nicety 
the  reward  belonging  to  each  patentee.    But 
in  the  presence  of  the  Shoe  Machinery  "tying" 
clause  no  such  just  distribution  is  possible. 
From  whence  then  is  X  to  derive  those  rewards 
of  which  society  has  judged  him  worthy?    If 
he  manufactures  his  device,  who  will  buy  or 
lease  it  ?    If  he  desires  to  sell  his  patent,  who 
wiU  purchase  it  ? 

In  the  case  under  discussion  the  patent  law 
and  its  construction  by  the  courts  have  pro- 
tected one  patentee  or  his  assignors  in  the 
enjoyment  of  profits,  and  prevented  another 
patentee  from  deriving  a  legitimate  reward  for 
his  services.  That  such  a  situation  is  unfair 
to  the  second  inventor  or  his  assignors  is  beyond 


Conditional  Requirements 


69 


dispute.  The  market  for  later  inventions  is 
closed  by  the  "tying"  clause  and  there  is  no 
opportunity  for  competition  to  develop.  At 
the  same  time  a  deadening  effect  upon  inventive 
capacity  results;  for  few  will  spend  their  efforts 
in  invention  when  legitimate  reward  is  denied 
or  when  their  remuneration  rests  withiu  the 
discretion  of  a  siagle  corporation. 

The  unsoundness  of  conditional  requirements 
based  upon  patents  was  recognized  by  the 
English  law  of  1907  declaring  certaiQ  of  such 
restrictions  to  be  in  restraint  of  trade  and  con- 
trary to  public  policy.' 

» "It  shall  not  be  lawful  in  any  contract  made  after  the  pass- 
ing of  this  act  in  relation  to  the  sale  or  lease  of,  or  license  to  use 
or  work,  any  article  or  process  protected  by  a  patent  to  insert 
a  condition  the  effect  of  which  will  be — 

"a.  to  prohibit  or  restrict  the  purchaser,  lessee,  or  licensee 
from  using  any  article  or  class  of  articles,  whether  patented  or 
not,  or  any  patented  process,  supplied  or  owned  by  any  person 
other  than  the  seller,  lessor,  or  licensor,  or  his  nominees;  or 

"b.  to  require  the  purchaser,  lessee,  or  licensee  to  acquire 
from  the  seller,  lessor,  or  licensor,  or  his  nominees,  any  article  or 
class  of  articles  not  protected  by  the  patent;  and  any  such  condi- 
tion shall  be  null  and  void,  as  being  in  restraint  of  trade  and  con- 
trary to  public  policy:  Provided  that  this  subsection  shall  not 
apply  if — 

"  (i)  The  seller,  lessor,  or  licensor  proves  that  at  the  time  the 
contract  was  entered  into  the  purchaser,  lessee,  or  licensee  had 
the  option  of  purchasing  the  article  or  obtaining  a  lease  or  license 
on  reasonable  terms  without  such  conditions  as  aforesaid;  and 

"  (ii)  The  contract  entitled  the  purchaser,  lessee,  or  licensee 
to  relieve  himself  of  his^liability  to  observe  any  such  condition 


I  I 


1(1 


I 


Hi 

HI 


70 


Unfair  Competition 
III 


E.  The  Commissioner  of  Corporations  in  his 
report  on  the  International  Harvester  Com- 
I  pany  used  the  term  "fuU-line  forcing"  to 
describe  "the  practice  of  requiring  dealers  to 
order  new  lines'  ....  as  a  condition  to  re- 
taining the  agency  for  some  brand  of  the  com- 
pany's harvesting  machines."* 

on  giving  the  other  party  three  months'  notice  in  writing  and  on 
payment  m  compensation  for  such  relief  in  the  case  of  a  purchase 
of  such  sum,  or  in  the  case  of  a  lease  or  license  of  such  rent  or 
royalty  for  the  residue  of  the  time  of  the  contract  as  may  be 
fixed  by  the  arbitrator  appointed  by  the  Board  of  Trade."— 
7  Edw.  VII,  ch.  28,  p.  126,  ch.  29,  p.  153.  Cf.  Sarason  v.  Frinay, 
L.R.  (1914)  2,  ch.  474.    All  italics  are  the  writer's. 

AustraUa  and  New  Zealand  have  similar  provisions  against 
"tying"  clauses.  A  careful  examination  of  the  patent  laws  of 
these  countries  will  reveal  how  far  behind  the  United  States  is 
in  affording  protection  to  the  pubUc  against  unreasonableness  on 
the  part  of  patentees. 

'  By  the  gradual  acquisition  of  various  concerns  in  the  years 
subsequent  to  organization  the  International  secured  certain 
new  lines.  Among  these  concerns  were  plants  for  the  manufacture 
of  farm  wagons,  manure  spreaders,  and  plows.  In  addition  it 
began  the  production  of  gasoline  engines  in  1904,  cream  separators 
in  1905,  and  tractors  in  1909. 

» RepoH  of  the  Commissioner  of  Corporations  on  the  Inter- 
national Harvester  Company,  p.  306.  The  report  states  that 
complaint  of  tiiis  practice  came  to  tiie  Bureau  from  a  number  of 
independent  dealers  and  manufacturers.  It  is  supported  by  the 
extracte  drawn  from  the  record  in  the  case  of  the  United  States 
y.  International  Harvester  Company  and  cited  in  the  government's 
brief.  For  example,  Claypool,  general  agent,  wrote  Perrot,  one 
of  the  blockmen,  February  3, 191 2,  regarding  the  approval  of  two 
commission  agency  contracts  sent  in  by  the  latter:  "How  about 


Conditional  Requirements 


71 


F.  A  restriction  of  similar  character  was 
alleged  by  the  government  to  have  been  enforced 
by  the  American  Coal  Products  and  Barrett 
Manufacturing  companies.  These  concerns  are 
supposed  to  have  a  very  substantial  control 
of  the  supply  of  pitch  made  from  coal  tar. 
Some  purchasers  and  users  of  roofing  materials 
have  been  required  to  buy  one  ton  of  felt  for 
every  two  tons  of  pitch.  Naturally  such  indi- 
viduals would  be  unlikely  to  purchase  tarred  felt* 

manure  spreaders,  wagons,  cream  harvesters  [sic],  engines,  tillage 
implements,  etc.  ?  ....  If  these  two  dealers  will  not  take  hold 
of  our  other  lines,  it  will  be  necessary,  for  our  own  protection,  to 
make  other  arrangements."  Cf.  brief  for  the  United  States, 
United  States  v.  International  Harvester  Company,  U.S.D.C. 
for  the  District  of  Minnesota,  p.  124;  cf.  also  ibid,,  pp.  123 
and  125.  In  justice  to  the  Harvester  Company  it  should  be 
said  that  it  introduced  a  good  deal  of  testimony,  all  tending 
to  prove  that  the  charge  of  full-line  forcing  was  untrue.  Cf. 
app>endix  to  defendant's  brief,  evidence  as  to  certain  points 
abstracted  and  topically  arranged,  United  States  v.  International 
Harvester  Company,  cit.  supra,  pp.  382  ff.  But  it  is  also  true  that 
the  assistant  general  manager  of  the  International  admitted 
that  "full-line  forcing"  had  been  used  {Report  of  the  Commissioner 
of  Corporations  on  the  International  Harvester  Company,  cit.  supra, 
P-  309)  >  though  claiming  that  it  was  not  to  be  regarded  as  a  policy 
of  the  company  but  rather  as  an  unauthorized  act  of  salesmen 
with  a  view  to  increasing  sales. 

'  Petition,  United  States  v.  American  Coal  Products  Company ^ 
cit.  supra,  p.  30.  It  should  be  noted  that  this  practice  was 
enjoined  by  Judge  Holt  in  a  decree  entered  March  14,  1913,  on 
the  consent  of  the  defendants  to  reform  their  organization.  As 
the  defendants  denied  this  and  other  violations  of  the  Sherman 
Act  set  forth  in  the  complainant's  bill,  the  charge  mentioned 
should  be  regarded  simply  as  an  allegation. 


i     H 


72 


Unfair  Competition 


A 


I  i' 


elsewhere  for  those  operations  in  which  such 
pitch  was  used. 

G.  The  manufacturer's  license  agreement  of 
the  Motion  Picture  Patents  Company  contains 
the  following  clause: 

The  Licensor^  hereby  grants  to  the  Licensee*  .... 
the  right  and  license  ....  to  manufacture,  print  and 
produce  positive  motion  pictures  ....  upon  condition 
that  they  be  used  solely  in  exhibiting  or  projecting  ma- 
chines containing  the  inventions,  or  some  of  them  of  said 
letters  patent  ....  and  licensed  by  the  Licensor.  .  .  .« 

It  is  probably  clear  that  in  this  case  the 
Motion  Picture  Patents  Company,  by  virtue 
of  its  fihn  control,  has  endeavored  to  compel 
the  use  of  motion-picture  machines  containing 
one  or  more  of  the  patents  which  it  controls. 

The  purpose  and  effect  of  all  conditions  in  the 
third  group  are  readily  seen.    To  a  greater  or  less 

» Motion  Picture  Patents  Company. 
•  Biograph  Company. 

'License  agreement  under  the  camera  and  film  patents 
between  Motion  Picture  Patents  Company  and  Biograph  Com- 
pany, December  i8,  1908,  section  (/),  clause  i.  Original  peU- 
tion,  United  States  v.  Motion  Picture  Patents  Company,  U.S.D.C. 
for  the  Eastern  District  of  Pennsylvania,  Exhibit  3,  p.  55.  Agreed 
ments  with  other  manufacturers  contained  the  same  clause. 
From  its  phrasing  it  might  appear  that  the  restriction  in  question 
was  based  upon  a  patent.  As  a  matter  of  fact  such  is  only 
nominally  the  case.  The  basic  patent  of  the  Motion  Picture 
Patents  Company  (Revised  Letters  Patent  12 192)  relates  only 
to  the  negative  film.  The  positive  films  which  are  printed  and 
developed  from  the  negative  films  and  sometimes  copyrighted 


Conditional  Requirements 


73 


degree  all  restrict  the  market  of  either  actual  or 
prospective  competitors,  or  both.  Consider  for 
a  moment  the  tendency  of  "full-line  forcing." 
A  dealer  who  is  compelled  to  take  a  new  line 
in  this  fashion  may  and  frequently  does  give 
up  his  agency  for  an  independent  line  of  the 
same  goods  which  he  has  been  carrying  in  the 
past.  It  has  been  claimed,  moreover,  that  in  ad- 
dition to  requiring  the  handling  of  other  prod- 
ucts as  a  condition  of  handling  those  desired 
by  a  dealer.  Harvester  Company  salesmen  have 
endeavored  to  overload  the  dealer,  thereby  ren- 
dering it  impracticable  that  he  order  similar 
goods  from  other  makers.  The  effect  of  this 
practice  upon  the  trade  of  other  manufacturers 
would  be  similar  to  that  which  occurs  when 
dealers  are  compelled  to  handle  one  line 
exclusively.' 

are  those  used  for  exhibition  purposes.  The  weight  of  judicial 
decision  is  to  the  efifect  that  the  control  of  a  patentee  does  not 
extend  to  the  product  of  a  patented  article  "unless  new  in  a 
patentable  sense."  There  is  therefore  no  distinction  in  principle 
between  this  condition  and  E  and  F  above.  The  Motion  Picture 
Patents  Company  has  endeavored  by  virtue  of  its  large  control  of 
films  to  compel  the  use  of  its  exhibiting  machines,  instead  of  those 
of  its  competitors.  The  fact  that  the  Patents  Company  hap- 
pened to  control  certain  patents  upon  motion-picture  machines 
is  merely  incidental.  The  basis  of  the  restriction  is  a  large  con- 
trol of  the  film  busmess,  precisely  as  the  basis  of  E  above  is  the 
large  control  of  harvesting  machinery,  or  F  above  the  large 
control  of  the  pitch  business. 

'  Cf.  next  chapter. 


I      !| 


I 


^ 


I 


,:| 


74 


Unfair  Competition 


While  there  is  theoretically  no  sound  reason 
why  anyone  should  not  undertake  the  manu- 
facture of  tarred  felt  for  roofing  purposes,  one 
who  does  so  is  not  long  m  discovering  that  the 
market  is.  not  a  free  and  open  one.  If,  as 
alleged,  the  Coal  Products  and  Barrett  people, 
controlling  a  considerable  proportion  of  the 
output  of  pitch,  require  that  one  ton  of  felt 
must  be  purchased  from  them  for  each  two 
tons  of  pitch,  the  manufacturer  of  tarred 
felt  will  be  hmited  in  his  sales  to  such 
parties  as  purchase  from  independent  pitch 
producers. 

Theoretically  the  inventor  of  a  new  motion- 
picture  machine  should  derive  large  returns 
therefrom,  considering  the  vast  extent  of  the 
motion-picture  business.  Actually  his  reward 
might  be  insignificant,  since  a  free  and  open 
market  is  denied  him  through  the  fact  that 
would-be  purchasers  of  his  machine  are  re- 
strained from  obtaining  fihns  from  the  Ucensed 
manufacturers  unless  they  are  to  be  used  upon 
machines  embodying  the  patents  controlled  by 
the  Motion  Picture  Patents  Company.* 

«At  the  time  the  suit  was  brought  by  the  United  States 
against  the  Motion  Picture  Patents  Company  the  licensee  manu- 
facturers of  that  organization  were  alleged  to  produce  between 
70  and  80  per  cent  of  the  motion-picture  films  annually  manu- 
factured in  the  United  States. 


Conditional  Requirements 


75 


Economically  fair  competition  would  seem 
to  demand  that  no  dealer  or  organization  should 
be  required  to  handle  a  line  of  goods  unless 
desiring  to  do  so;  that  none  should  be  com- 
pelled to  purchase  goods  from  one  organization 
if  preferring  to  purchase  them  from  another; 
and  that  no  person  should  be  forced  to  use  one 
make  of  a  machine  if  he  prefers  to  use  another. 
The  only  methods  that  should  be  open  to  a 
concern  in  marketing  its  products  are  the 
economically  fair  methods.  If  salesmanship, 
prices,  and  quality  of  goods  or  similar  bases  of 
sale  then  fail  to  secure  results  for  a  given 
manufacturer,  there  is  every  reason  to  suppose 
that  competing  organizations  possess  equal  or 
superior  efficiency  in  some  one  or  more  of  these 
respects.  It  follows,  therefore,  that  any 
conditional  requirements  which  attempt  to 
check  or  destroy  this  latter  competition  are 
unfair  to  these  presumably  efficient  manu- 
facturers. The  fact  that  a  manufacturer  may 
produce  a  better  article  or  may  sell  it  at 
a  lower  price  may  be  of  little  advantage  to 
him  when  conditional  requirements  are  used. 
In  spite  of  these  things,  he  may  be  prevented 
from  developing  his  business  to  the  extent  to 
which  his  economic  efficiency  entitles  him, 
from    securing    that    business    which    would 


( 


76 


Unfair  Competition 


undoubtedly  be  his  under  conditions  of  eco- 
nomically fair  competition.  Nor  should  the 
effect  of  such  restrictions  upon  potential  com- 
petitors be  overiooked.  It  is  difficult  to 
believe  that  capital  will  readily  enter  a  field  of 
business  where  conditional  requirements  exist, 
if  aware  in  advance  of  restrictions  which  either 
partially  or  entirely  close  the  market  to  the 
products  of  the  projected  undertaking. 


CHAPTER  V 

EXCLUSIVE  ARRANGEMENTS' 

Exclusive  arrangements  may  be  defined  as 
arrangements  which  require  that  certain  deal- 
ings or  transactions  shall  be  confined  exclusively 
to  a  specified  organization  or  organizations.* 

*  Exclusive  arrangements  exist  in  the  deferred-rebate  plans  of 
various  steamship  conferences.  It  has  been  deemed  advisable, 
however,  to  consider  such  arrangements  in  connection  with  a 
discussion  of  rebates,  which  is  to  follow. 

'  A  clear  line  of  demarkation  does  not  exist  between  exclusive 
arrangements  and  the  conditional  requirements  discussed  in  the 
preceding  chapter.  It  will  be  readily  understood  that  condi- 
tional requirements  are  often  necessarily  exclusive  in  their  char- 
acter. For  example,  the  contract  offered  by  the  Electric  Lamp 
Combination  provided  that  tungsten-  and  tantalum-filament 
lamps  would  be  supplied  to  jobbers  agreeing  to  purchase  all  their 
carbon-filament  lamps  from  the  combination.  Clearly  this  is  an 
arrangement  requiring  organizations  to  purchase  exclusively.  On 
the  other  hand,  a  conditional  requirement  is  not  inevitably 
exclusive.  Thus  the  alleged  Barrett  restriction  requiring  every 
purchaser  of  two  tons  of  pitch  to  purchase  also  one  ton  of  tarred 
roofing  felt  is  not  by  its  terms  exclusive.  It  does  not  require 
purchasers  of  pitch  to  purchase  all  their  roofing  felt  of  the 
Barrett  concern,  and,  so  far  as  the  words  of  the  arrangement 
are  concerned,  there  is  nothing  to  prevent  an  organization  from 
purchasing  roofing  felt  elsewhere.  While  it  is  necessary  to 
admit  that  the  actual  effect  of  such  an  arrangement  might  be 
to  cause  buyers  of  pitch  to  confine  their  purchases  exclusively  to 
the  Barrett  Company,  yet  in  terms  there  is  nothing  requiring 
such  action,  and  under  a  variety  of  circumstances  conditional 
requirements  might  conceivably  be  non-exclusive. 

77 


if! 


I 


78 


Unfair  Competition 


As  commonly  used  they  may  be  divided  into 
three  classes:^ 

A.  Arrangements  which  require  that  organizations 
shall  use  exclusively. 

B.  Arrangements  which  require  that  organizations 
shall  sell  exclusively. 

C.  Arrangements  which  require  that  organizations 
shall  purchase  exclusively. 

The  purpose  of  all  restrictions  of  this  type 
is  substantially  the  same,  i.e.,  to  obtain  as  much 
business  as  is  possible  for  those  concerns  im- 
posing them. 

A.  Arrangements  of  the  first  class  are  fre- 
quently required  by  the  licensor  of  a  patented 
device  from  his  licensee.  The  best  illustration 
is  the  United  Shoe  Machinery  Company.  This 
corporation  in  its  leases  has  used  two  types  of 
clauses  of  this  character  which  have  been 
denominated  the  "exclusive-use"  clause  and 
the  "prohibitive"  clause  respectively.  Both 
have  been  designed  to  restrict  manufacturers 
to  the  use  of  the  machines  leased  from  the 
United  Shoe  Machinery  Company. 

The  "exclusive-use"  clause  for  lasting  and 
tacking  machines  runs  as  follows: 

{c)  If  at  any  time  the  lessee  shall  fail  or  cease  to  use 
exclusively  lasting  machinery  held  by  him  under  lease 

'It  is  presumably  clear  that  other  exclusive  arrangements 
might  also  be  made,  such  as  exclusive  leasing,  etc. 


1 1 


Exclusive  Arrangements 


79 


from  the  lessor  for  lasting  all  boots,  shoes,  and  other 
footwear  made  by  or  for  him,  which  are  lasted  by  the 
aid  of  machinery,  or  shall  fail  or  cease  to  use  exclusively 
tacking  mechanisms  and  appliances  held  by  him  under 
lease  from  the  lessor,  for  doing  all  work  in  the  manu- 
facture of  all  boots,  shoes,  and  other  footwear  made 
by  or  for  him  which  is  done  by  the  aid  of  tacking 
mechanism  and  appliances,  the  lessor,  although  it  may 
have  waived  or  ignored  prior  instances  of  such  failure 
or  cessation,  may  at  its  option  terminate  forthwith 
by  notice  in  writing  any  or  all  leases  or  licenses  of  last- 
ing machines,  lasting  machinery,  lasting  mechanisms, 
or  lasting  devices,  then  existing  between  the  lessor  and 
the  lessee,  whether  as  a  result  of  assignment  to  the 
lessor  or  otherwise;  and  the  possession  of  and  full 
right  to  and  control  of  all  lasting  machines,  lasting 
machinery,  lasting  mechanisms,  and  lasting  devices, 
the  lease  or  license  of  which  is  so  terminated  shall 
thereupon  revest  in  the  lessor  free  from  all  claims  and 
demands  whatsoever.' 

The  "prohibitive"  clause  reads  that: 
{d)  The  leased  machinery  shall  not  nor  shall  any 
part  thereof  be  used  in  the  manufacture  or  preparation 
of  any  welted  boots,  shoes,  or  other  footwear  or  por- 
tions thereof  which  have  been  or  shall  be  welted  in 
whole  or  in  part,  or  the  soles  in  whole  or  in  part  stitched 
by  the  aid  of  any  welt-sewing  or  sole-stitching  machin- 
ery not  held  by  the  lessee  under  lease  from  the  lessor, 
or  in  the  manufacture  or  preparation  of  any  turned 

» Exhibit  21,  lease  for  No.  $  lasting  machine,  record.  United 
States  V.  United  Shoe  Machinery  Company,  U.S.D.C,  District 
of  Massachusetts,  Vol.  IX,  pp.  187-88.  Quoted  in  government's 
brief,  pp.  72-73.    Italics  are  the  writer's. 


1. 1 


I'll 


' 


8o 


Unfair  Competition 


boots,  shoes,  or  other  footwear  or  portions  thereof  the 
soles  of  which  have  been  or  shall  be  in  whole  or  in  part 
attached  to  their  uppers  by  the  aid  of  any  turn-sewing 
machinery  not  held  by  the  lessee  under  lease  from  the 
lessor,  or  in  the  manufacture  of  any  boots,  shoes,  or 
other  footwear  which  have  been  or  shall  be  in  whole  or 
in  part  pulled  over,  slugged,  heel  seat  nailed,  or  other- 
wise partly  made  by  the  aid  of  any  puUing-over  or 
"metallic"  machinery  not  held  by  the  lessee  under 
lease  from  the  lessor.' 

The  "exclusive-use"  clause  appears  in  twenty- 
two  lease  forms  of  the  United  Shoe  Machinery 
Company  and  the  "prohibitive"  clause  in 
twenty-seven.*  Their  restrictive  effect  is  shown 
in  the  experience  of  Mr.  Alexander  Stone,  of 
the  Atlas  Works  of  Leipzig,  Germany,  who 
came  to  this  country  to  make  an  attempt  to 
instal  machines  manufactured  by  his  company. 
He  remained  here  nearly  six  weeks  and  suc- 
ceeded in  selling  only  two  machines,  both  of 
which  were  used  for  putting  on  wooden  heels. 
According  to  his  testimony  Jackson  Roberts, 
of  Roberts,  Johnson  &  Rand,  said  to  him: 

My  boy,  I  know  all  about  it,  about  the  machines 
you  are  producing  in  Germany  and  what  kind  of 

'Exhibit  21,  lease  for  No.  $  lasting  machine,  record,  United 
States  V.  United  Shoe  Machinery  Company,  U.S.D.C,  District  of 
Massachusetts,  Vol.  IX,  p.  185,  quoted  in  government's  brief,  p.  73, 

»Rdsum6  of  leases  in  brief  for  the  United  States,  ibid,. 
pp.  138-46. 


Exclusive  Arrangements 


81 


machines  can  be  made  in  Germany  or  in  Europe;  but 
as  it  is,  you  know,  if  you  bring  over  a  machine 
which  is  constructed  in  such  a  way  that  we  drive 
a  cow  into  it,  and  on  one  side  the  ready-made  shoes 
come  out,  and  on  the  other  side  the  ready-made 
sausages,  and  you  want  to  sell  it  to  us  for  ten  cents, 
then  we  are  not  allowed  to  install  it  or  make  any 
use  of  it/ 

B  and  C.  That  in  some  cases  an  exclusive 
purchasing  and  in  others  an  exclusive  selling 
arrangement  is  resorted  to  may  in  all  probability 
be  ascribed  primarily  to  differences  in  marketing 
methods.  When  a  given  organization  seUs  its 
products  to  intermediaries  who  in  turn  resell 
to  the  consumer,  it  seems  to  be  immaterial 
whether  an  exclusive  purchasing  or  an  exclusive 
selling  arrangement  is  used.  If  a  dealer  is 
compelled  to  sell  exclusively  the  products  of 
one  organization,  he  must  obviously  make  his 
purchases  exclusively  from  the  said  organiza- 
tion also.  Conversely,  if  a  dealer  is  forced  to 
purchase  certain  products  from  one  organization 
exclusively,  it  is  equally  evident  that  he  must 
also  sell  the  products  of  that  organization 
exclusively.  On  the  other  hand,  if  an  organ- 
ization sells  its  products  direct  to  the  consumer, 

« Alex.  Stone,  record,  ibid..  Vol.  IV,  p.  1674,  quoted  in  govern- 
ment's brief,  p.  190.  He  further  testified  that  statements  to  a 
similar  effect  were  made  by  other  manufacturers. 


/    '• 


Ilk 


1  • 


82 


Unfair  Competition 


there  can  be  no  possible  advantage  in  demand- 
ing an  arrangement  for  exclusive  selling,  since 
the  consumer  has  no  intention  of  reselling 
the  goods.  Exclusive  purchasmg  arrangements 
alone,  therefore,  will  very  likely  be  found  in 
a  majority  of  cases  where  organizations  sell 
their  products  directly  to  the  consumers 
thereof. 

Many  factors'  agreements,  possibly  the 
larger  proportion  of  them,  contain  a  clause 
requiring  either  exclusive  purchasing  or  exclu- 
sive selling.'  For  this  reason,  more  than  for 
any  other,  such  arrangements  have  been 
denounced  as  destroyers  of  competition  and 
agents  of  monopoly.  Thus  the  factors'  agree- 
ment of  the  American  Tobacco  Company, 
dated  October  i,  1895,  contained  the  following 
clause: 

Eleventh.  Upon  your  acceptance  in  writing  of  the 
terms  and  conditions  of  this  agreement,  you  understand 
and  agree  that  you  will  handle  our  cigarettes  exclu- 
sively  * 

'  The  fact  should  not  be  lost  sight  of  that  these  dauses  are 
merely  written  manifestations  of  the  arrangements  themselves. 
They  are  in  no  sense  necessary  to  exclusive  selling  or  purchasing, 
for  these  things  can  be  secured  without  any  written  contract. 

'  Report  and  proceedings  of  the  jomt  conmiittee  of  the  Senate 
and  Assembly  appointed  to  investigate  trusts,  state  of  New  York, 
Senate  Document  No.  40,  1897,  p.  881. 


Exclusive  Arrangements 


83 


Later  the   Continental   Tobacco   Company  1 
enforced  contracts  requiring  dealers  not  to  sell 
or  purchase  the  goods  of  competitors.* 

Another  exclusive  clause  not  of  recent  origin 
may  be  quoted  from  the  factors'  agreement  of 
the  National  Wall  Paper  Company: 

3.  The  purchaser  exclusively  guarantee  [sic]  and 
agree  [sk]  that  between  September  i,  1896,  and  June 
30,  1897,  will  not  purchase  or  acquire  any  wall  paper 
or  hangings  the  product  of  any  person  or  corporation 
other  than  the  company * 

At  a  subsequent  date  the  Contmental  Wall 
Paper  Company  required  all  wholesalers  and 
jobbers  to  sign  an  agreement  contaimng  a  clause 
which  read  as  follows: 

It  is  agreed  ....  That  the  company  will  sell 
....  and  the  jobber  will  purchase,  the  entire  requke- 
ments  of  the  jobber  in  his  business  of  selling  wall  paper 
for  the  business  year  ending  July  i,  1899.^ 

In  past  years  the  Photographic-Supplies 
Combination  has  also  enforced  exclusive  sales 
arrangements.  The  government  claimed  that 
even  at  the  time  its  suit  was  brought  the  East- 
man Kodak  Company  of  New  York  would  not 

'  Cf .  chap,  vii,  infra, 

»New  York  Senate  Document  No.  40,  1897,  cU.  supra, 
pp.  804-5. 

*  Up  to  a  certain  specified  amount.  Continental  Wall  Paper 
Company  v.  Lewis  VoigJU  &  Sons  Co.,  148  Fed.  939;  cf.  945. 


I 


I'      1 

I'  r 


ii 


84 


Unfair  Competition 


. '  ■  '■ 


■  \. 


sell  any  of  its  line  of  goods,  patented  or  unpat- 
ented, to  any  independent  retail  dealer  who 
handled  a  line  of  goods  manufactured  and 
marketed  by  its  competitors/  The  following 
quotation  indicates  the  conditions  formerly 
prevaiHng  in  this  industry: 

Q.  [By  Mr.  Clarke.]  Now,  suppose  that  a  dealer 
handling  Mr.  Carbutt's  paper  wanted  some  other 
article — say  a  camera,  for  example — from  the  East- 
man Kodak  Company;   could  that  dealer  procure  it? 

A.  Why,  I  doubt  whether  the  Eastman  Kodak 
Company  would  sell  that  dealer  unless  he  were  han- 
dling their  whole  line  exclusively.  I  do  not  think  they 
would  care  to  sell  him  unless  he  would  confine  his 
energies  to  their  line.* 

The  Pottery  Association  of  1904  by  a  clause 
in  its  contract  offered  inducements^  to  dealers 
to  comply  with  certain  conditions  among  which 

'Petition,  United  States  v.  Eastman  Kodak  Company,  cit, 
supra,  p.  34.  The  Eastman  Kodak  Company  of  New  York  con- 
ducts the  business  of  manufacturing,  selling,  and  shipping  articles 
used  in  the  photographic-supply  business.  Its  capital  stock  is 
owned  by  the  Eastman  Kodak  Company  of  New  Jersey,  a 
stockholding  corporation  organized  in  1901,  which  also  holds 
the  stock  of  Kodak,  Ltd.,  of  London,  England,  and  Cana- 
dian Kodak  Company,  Ltd.,  a  corporation  of  the  Dominion  of 
Canada. 

'  C.  S.  Abbott,  Report  of  the  United  States  Industrial  Commis- 
sion on  Trusts  and  Industrial  Combinations  (second  volume  on 
this  subject),  Vol.  XIII,  p.  198. 

*  Cf.  next  chapter. 


Eocclusive  Arrangements 


85 


III 


was  one  providing  that  "purchases  or  receipts 

of  all  domestic  premium  wares^ during 

the  year  1904  must  be  confined  to  members  of 
the  Pottery  Association."  This  organization 
embraced  upward  of  80  per  cent  of  the  pottery 
manufacturers  in  the  United  States.^ 

Until  1905  the  commission-agency  contracts 
of  the  International  Harvester  Company  con- 
tained a  clause  which  required  a  dealer  under 
penalty  to  handle  exclusively  the  harvesting 
machinery  of  that  organization.^  In  that  year, 
however,  these  clauses  were  eliminated.  At 
the  time  anti-trust   proceedings   against   the 

'Defined  by  another  article  as  including  only  dinner  and 
toilet  ware. 

*Morony  Hardware  Company  v.  Goodwin  Pottery  Company, 
120  S.W.  1088.    Cf.  pp.  1089-90. 

*The  following  is  a  tj^ical  clause  of  this  character:  "Such 
agent  especially  agrees  not  to  accept  the  agency  for  or  to  be  inter- 
ested in  the  sale  of  any  grain  binder,  header,  com  binder,  husker 
and  shredder,  reaper,  mower,  stacker,  sweep  rake,  hay  rake,  or 
hay  tedder,  other  than  those  manufactured  by  the  International 
Harvester  Company,  either  directly  or  indirectly,  nor  to  permit 
anyone  acting  for  him  as  employee,  agent  or  partner,  so  to  do 
while  acting  as  agent  for  the  said  company  under  this  contract, 
and  said  agent  agrees  to  pay  such  company  on  demand  as  liqui- 
dated damages,  twenty-five  dollars  for  each  grain  binder,  header, 
or  com  binder;  fifty  dollars  for  each  husker  and  shredder;  ten 
dollars  for  each  mower,  reaper  or  stacker;  five  dollars  for  each 
sweep  rake,  hay  rake,  or  hay  tedder  sold  in  violation  of 
this  paragraph  of  this  contract."— i2e/>(7r/  of  the  Commis- 
sioner of  Corporations  on  the  International  Harvester  Company, 
p.  304. 


I 


If 


86 


Unfair  Competition 


company  were  pending  in  several  states.  In 
the  state  of  Texas  the  clauses  were  dispensed 
with  three  years  earlier.  In  no  case  have  they 
been  restored.'  The  Harvester  Company  em- 
phatically denied  in  its  brief  that  it  had  ever 
attempted  to  compel  dealers  to  handle  its  goods 
exclusively.  To  prove  this  point  it  secured  the 
testimony  of  a  large  number  of  witnesses.* 
Against  this  evidence  one  must,  however, 
weigh  the  following  extract  from  a  circular 
letter  of  instruction  written  on  November  ii, 
1904,  by  R.  C.  Haskins,  the  then  head  of  its 
domestic-sales  division: 

There  has  been  some  discussion  lately  on  the  sub- 
ject of  the  exclusive  feature  of  our  commission  con- 
tract, and  we  desire  at  this  time  to  state  the  principle 
that  will  govern  in  this  matter.  Where  we  furnish 
goods  to  an  agent  for  sale  on  a  conamission  or  consign- 
ment contract,  our  interests  demand  that  such  articles  be 
handled  solely  on  an  exclusive  basis .^ 

A  very  recent  case  of  an  exclusive  arrange- 
ment is  to  be  found  in  the  so-called  "jobbers' 

^Report  of  the  Commissioner  of  Corporations  on  the  Inter- 
national Harvester  Company^  p.  304, 

'Statement,  brief,  and  argximent  for  defendants.  United 
States  V.  International  Harvester  Company,  cit.  supra,  pp.  102  ff., 
and  also  appendix  to  defendants'  brief,  ibid.,  pp.  382  ff. 

»  Brief  for  the  United  States,  ibid.,  pp.  127-28.  Italics  are 
the  writer's. 


Exclusive  Arrangements 


87 


license  agreement"'  of  the  recently  dissolved 
Bathtub  Trust.  This  document  contained  the 
following  clause: 

10.  The  Purchaser^  also  agrees  during  the  life  of 
this  contract  not  to  purchase,  seU,  advertise,  soUcit 
orders  for,  or  in  any  way  handle  or  deal  in  Sanitary 
Enameled  Iron  Ware  of  any  manufacturer  not  licensed 
....  except  with  the  express  written  permission  of 
the  Licensor.* 

The  Keystone  Watch  Case  Company  did  nt)t 
apparently  follow  the  policy  of  requiring  job- 
bers to  sign  agreements  providing  for  exclusive 
purchase  or  sale.  None  the  less  it  seems  to  have 
been  the  policy  of  this  organization  to  msist 
that  these  distributors  conduct  their  business 
on  an  exclusive  basis.  On  January  15,  1910, 
there  was  mailed  a  delicately  worded  letter  to 

»The  term  "license  agreement"  is  rather  a  misnomer  as 
implying  the  permission  to  manufacture  or  sell  a  patented  article. 
The  agreement  in  question,  in  addition  to  the  exclusive-sales 
arrangement,  provided  for  the  maintenance  of  prices  upon  sani- 
tary enameled  ironware,  which  was  absolutely  unpatentable  in 
itself,  although  in  its  manufacture  a  patented  tool  was  used. 
The  contention  of  the  combination  was  that  the  protection  of  the 
use  of  the  patent  constituted  sufficient  ground  for  the  creation 
of  the  combination  and  of  its  various  agreements.  As  this 
view  was  denied  by  the  court  the  term  "license  agreement"  is 
inappropriate  in  this  connection.    Cf.  226  U.S.  20.    Of.  48-49. 

'  The  jobber. 

3  Record,  United  States  v.  Standard  Sanitary  Manufacturing 
Company,  U.S.D.C.  for  thejDistrict  of  Maryland,  Vol.  II,  p.  37. 
Italics  are  the  writer's. 


1 


it 


88 


Unfair  Competition 


the  jobbing  trade  intimating  the  wishes  of  the 
company  in  this  and  other  matters.  The  sec- 
tion of  this  letter  relating  to  exclusive  arrange- 
ments reads  as  follows: 

Fourth.  And  further,  we  desire  that  the  jobbers 
to  whom  we  sell  our  goods  bearing  the  following  trade- 
marks, to  wit,  Eowardy  Boss,  Crescent,  Planet,  Crown, 
SUveroid,  and  Excelsior  shall  not  deal  in  any  watch 
cases  other  than  those  manufactured  by  us.' 

The  Cleveland  Stone  Company  is  alleged 
to  produce  and  sell  from  80  to  90  per  cent  of  the 
domestic  production  of  grindstones.    As  not 
more  than  12  to  15  per  cent  of  the  total  num- 
ber of  grmdstones   sold   in  this  country  are 
imported  from  abroad,  this  organization  sells 
in  consequence  about  75  per  cent  of  our  total 
consumption    of    grindstones.    All    sales    are 
made  to  jobbers  and  to  jobbers  only.    The 
company  requires  that  each  jobber  handling  its 
goods  shall  enter  into  an  agreement  with  it 
not  to  handle  the  goods  of  any  other  concern. 
It  also  refuses  to  deal  with  jobbers  who  handle 
to  any  extent  the  products  of  one  or  more  of  its 
competitors.* 

'Petition  in  equity,  United  States  v.  Keystone  Watch  Case 
Company,  U.S.C.C.  for  the  Eastern  District  of  Pennsylvania, 
p.  15.    For  further  details  cf.  infra,  chap.  x. 

» Petition  m  equity,  United  States  v.  Cleveland  Stone  Company 
U.S.D.C.  for  the  Northern  District  of  Ohio,  pp.  19-20. 


Exclusive  Arrangements 


89 


The  consequences  which  flow  from  the 
enforcement  of  arrangements  of  the  character 
described  may  be  well  illustrated  by  the  cases 
of  the  Bathtub  and  Photographic-Supplies 
combinations.  It  was  estimated  by  Mr.  Way- 
man  that  80  per  cent  of  the  total  furnace 
capacity  of  the  country  was  controlled  by  the 
sanitary  enameled  ironware  manufacturers  who 
joined  the  former  combination."  At  the  same 
time  all  the  jobbing  trade  except  about  1 2  per 
cent'  signed  the  "jobbers'  license  agreement" 
containing  the  exclusive  clause  previously 
quoted.  In  consequence  the  market  of  20  per 
cent  of  the  production  of  the  country,  based 
on  furnace  capacity,  was  limited  to  12  per  cent 
of  the  total  number  of  jobbers,  for  jobbers  who 
signed  the  agreement  were  obligated  to  purchase 
exclusively  from  licensed  manufacturers.^  All  of 

*  Edwin  L.  Wayman,  record,  United  States  v.  Sanitary  Manu- 
facturing Company,  cit.  supra,  Vol.  I,  p.  69. 

» All  the  principal  jobbers  of  plumbing  supplies  in  the  United 
States  are  Hsted  in  the  "Blue  Book"  of  the  plumbing  trade, 
known  officially  as  "List  of  Jobbers  of  Plumbing  Supplies  in  the 
United  States,"  and  dated  July,  1910.  Only  49  out  of  the  387 
jobbers  on  this  list,  or  about  12  per  cent,  refused  to  sign  the 
agreement.  Forty-eight  jobbers  not  mentioned  in  the  "Blue 
Book"  also  signed.  Assuming  the  ratio  of  signers  to  non-signers 
to  be  the  same  among  jobbers  not  listed  in  the  "Blue  Book"  as 
among  those  who  were,  the  percentage  of  the  total  number  of 
jobbers  who  failed  to  sign  would  be  about  that  stated. 

3  Licensed  manufacturers  were  those  who  signed  the  agree- 
ment which  was  the  basis  of  the  combination. 


90 


Unfair  Competition 


i 


I  . 


m 


them,  therefore,  who  kept  this  condition  of 
the  agreement  must  in  consequence  cease  to 
purchase  from  such  independents  as  refused 
to  join  the  combination  and  thus  become 
licensed  manufacturers.  The  testimony  given 
by  John  A.  Kelly  illustrates  this  pomt  admir- 
ably. Mr.  Kelly  was  a  manufacturer  who, 
believing  the  Bathtub  Combination  to  be  il- 
legal, emphatically  refused  to  join  it,  although 
strongly  urged  to  do  so. 

Q.  Did  some  of  the  jobbers  who  had  bought  goods 
of  you  prior  to  June  6  decline  to  buy  thereafter  ? 

A.  Yes,  sir. 

Q.  Did  they  assign  any  reason  ? 

A,  Yes,  sir. 

Q.  What  was  the  reason  ? 

A.  Because  we  did  not  sign  the  license  agreement.* 

The  operation  and  effect  of  the  exclusive 
selling  clause  contained  in  the  contracts  of  the 
Photographic-Supplies  Combination  is  indi- 
cated in  the  testimony  of  W.  B.  Dailey.  Mr. 
Dailey  was  a  manufacturer  of  photographic 
paper  in  competition  with  the  combination. 
After  relating  instances  where  dealers  were 
cut  off  by  the  combination  for  failure  to  sell 

'John  A.  Kelly,  record,  United  States  v.  Sanitary  Manu- 
facturing Company,  cit.  supra,  Vol.  I,  p.  231. 


Exclusive  Arrangements 


91 


exclusively,  he  said,  referring  to  one  of  these 
dealers: 

....  He  put  up  about  as  game  a  fight  as  anybody 
could  for  nearly  a  year.  But,  finally,  it  was  the  same 
thing  with  him.  He  said  to  himself,  "I  am  losing 
money;  there  is  no  use  talking;  I  have  fought  it  hard 
this  year,  but  I  cannot  get  the  goods  to  sell;  the  paper 
alone  is  not  enough."  So  he  had  to  give  in,  and  so  it 
has  gone  in  a  number  of  cases. 

Later  Mr.  Dailey  remarked  that  the  only 
way  it  was  possible  for  himself  and  other  manu- 
facturers to  compete  was  by  selling  direct  to 
the  consumer.' 

It  would  seem  to  be  a  cardinal  principle  of 
fair  competition  that  every  organization  should 
be  allowed  to  market  its  goods  freely  upon  the 
basis  of  their  quality  and  its  own  productive 
and  selling  efficiency.  If  under  such  conditions 
a  business  does  not  expand  or  if  it  loses  ground, 
the  reasons  therefor  must  be  sought  within  the 
organization  itself.  They  must  be  looked  for 
in  the  quality  of  the  goods,  in  their  prices,  or 
in  the  organization  and  management  of  the 
various  departments  of  the  concern.  On  the 
other  hand,  if  exclusive  arrangements  are  insisted 
upon  and  enforced,  it  would  appear  that  a 

^Report  of  Industrial  Commission,  Vol.  XIII,  cit.  supra, 
pp.  184-85. 


int 


92 


Unfair  Competition 


competing  business  might  fail  to  develop  or 
might  be  unable  to  hold  its  own  without  being 
in  any  way  responsible  therefor.  It  is  also  clear 
that  the  wide  extension  of  such  arrangements  by 
some  organizations  would,  as  in  the  case  of  con- 
ditional requirements,  constitute  a  powerful 
deterrent  to  prospective  competition. 

Many  arguments  have  been  advanced  to 
prove  the  necessity  of  exclusive  arrangements, 
and  some  of  them  have  found  a  too  ready 
acceptance.  It  is  asserted,  for  example,  that 
it  is  necessary  to  compel  the  dealer  to  sell  exclu- 
sively in  order  to  insure  that  goods  will  be  prop- 
erly pushed  by  him.  Such  a  view  would  seem  in 
itself  a  confession  of  weakness.  It  would 
appear  to  be  an  acknowledgment  of  the  fact 
that  there  may  be  equally  good  or  better  com- 
modities of  the  same  character  upon  the  market 
at  an  equivalent  or  lower  price.  If  such  a 
situation  exists,  it  would  seem  that  the  exclusive 
arrangement  violates  the  principle  of  fair  com- 
petition between  these  commodities.  If  an 
organization  is  so  efficient  that  it  manufactures 
articles  of  a  quality  equal  to  or  better  than 
those  of  another  organization  and  markets  them 
at  a  price  equally  as  low  or  lower  than  those  of 
the  other,  it  does  not  require  exclusive  arrange- 
ments to  insure  that  its  goods  will  find  a  market. 


I! 


Exclusive  Arrangements 


93 


In  consequence  no  organization  should  be 
allowed  to  enforce  this  kind  of  an  arrangement 
which  may,  as  indicated,  hinder  an  efficient 
organization  from  obtaining  a  market  for  its 
commodities. 

Still  another  view  of  the  necessity  of  exclusive 
arrangements  is  expressed  by  a  well-known 
business  man  who  wrote  to  President  Wilson 
as  follows:  "If  a  new  concern  cannot  grant  to 
one  party  or  store  in  a  certain  territory  an 
exclusive  agency  for  its  goods  with  a  distinct 
understanding  that  the  same  will  not  handle 
any  competing  goods,  the  goods  of  a  new  con- 
cern in  most  lines  of  business  will  never  stand 
a  ghost  of  a  show."''  Although  this  is  the  state- 
ment of  a  business  man  of  long  experience,  his 
conclusion  may  be  doubted.  In  the  first  place, 
there  has  been  a  tendency  to  confuse  exclusive 
purchasing,  selling,  and  similar  arrangements  on 
the  one  hand  with  what  may  be  termed  exclusive 
territorial  arrangements  on  the  other.  The  two 
are  not  the  same.  A  purely  exclusive  terri- 
torial arrangement  merely  gives  to  a  dealer  or 
agent  the  right  to  sell  the  goods  of  a  given  organ- 
ization within  a  certain  territory  without  com- 
petition from  other  dealers  or  agents  of  the 

»  Copy  of  the  letter  of  D.  E.  Felt  to  President  Wilson,  dated 
May  30,  19 14.  Mr.  Felt  was  kind  enough  to  supply  the  present 
writer  with  a  copy. 


li 


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Wl 


I  ■ 


I  \f 


i 


m 


94 


Unfair  Competition 


same  organization.  This  is  a  very  different 
thing  from  requiring  that  the  said  dealer  or 
agent  shall  purchase  or  sell  only  the  goods  of 
the  organization  in  question.  In  other  words, 
the  two  arrangements  are  entirely  distinct, 
although  they  may  be  coupled  with  each  other.* 
It  is  very  doubtful  if  the  allotment  of  exclu- 
sive territory  is  not  entirely  sufficient  to  permit 
the  introduction  of  new  commodities.  It  is 
equally  doubtful  if  an  exclusive  selling  or  pur- 
chasing arrangement  is  necessary  to  secure  this 
result,  as  Mr.  Felt  would  have  us  believe. 
Even  if  this  were  not  the  case,  exclusive  arrange- 
ments might  none  the  less  be  regarded  as 
economically  unjustifiable.  As  this  section  has 
attempted  to  demonstrate  by  citing  actual  in- 
stances, such  arrangements  not  only  handicap 
existing  competitors,  but  also  deter  prospec- 
tive competitors.  The  possible  disadvantages 
arising  from  the  use  of  these  arrangements,^ 
as  indicated  by  the  cases  of  the  Shoe  Machinery, 

*  Cf.  Federal  Trade  Commission  Conference  Rulings  BuU.  No.  i, 
various  decisions  relating  to  exclusive  territorial  arrangements. 

'The  writer  is  of  the  opinion  that  such  exclusive  arrange- 
ments as  operate  unfairly  are  within  the  scope  of  section  5  of  the 
Trade  Commission  Act.  In  addition,  section  3  of  the  Clayton 
Act  specifically  declares  unlawful  certain  classes  of  exclusive  con- 
ditions "where  the  effect  ....  may  be  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce." 


Exclusive  Arrangements 


95 


Kodak,  and  Bathtub  combinations,  might 
conceivably  outweigh  the  possible  economic 
advantages  to  the  introduction  of  new  lines. 
To  permit  an  organization  introducing  a  new 
line  to  use  exclusive  purchasing  and  selling 
arrangements  is  equivalent  to  granting  to  it 
permission  to  handicap  and  restrict  other 
organizations  attempting  to  compete  with  it 
at  any  future  time,  and  such  a  proposal 
should  be  regarded  as  economically  unsound.' 
The  offer  of  exclusive  territory  by  a  manu- 
facturer is  ordinarily  quite  sufficient  to  secure 
him  adequate  channels  of  distribution.  It  is 
doubtful  if  he  would  obtain  either  more  nimier- 
ous  or  better  agents  by  imposing  exclusive 
arrangements  upon  them.  On  the  contrary, 
it  is  not  unreasonable  to  assume  that  insistence 
upon  such  arrangements  would  in  some  cases 
prevent  the  manufacturer  from  procuring  the 
best  agents. 

Another  not  imcommon  argument  made  in 
favor  of  exclusive  arrangements  is  that  if  such 
requirements    were   abolished    or   prohibited, 

*  Another  situation  ought  not  to  be  overlooked.  In  many 
cases  it  might  be  impossible  for  an  organization  manufacturing 
a  new  competing  article  to  enforce  exclusive  arrangements 
because  of  the  fact  that  it  does  not  manufacture  an  entire  hne  of 
articles  or  goods  but  only  some  one  or  other  of  the  commodities 
comprising  the  line.  Cf.  the  statement  of  Mr.  Dailey,  above, 
regarding  the  situation  in  photographic  paper. 


!'  'Jl 


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Hi  f 


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Mff' 


'I  i 


96 


Unfair  Competition 


purchasers  could  not  protect  themselves  against 
the  fluctuations  of  the  market  by  means  of 
long-term  contracts.  One  who  makes  this 
contention  however  overlooks  the  fact  that  a 
long-term  contract  of  purchase  is  not  neces- 
sarily exclusive  in  character.  In  the  past, 
concerns  could  usually  be  found  which  would 
agree  to  supply  purchasers  under  long-term 
contracts  containing  no  such  features.  Condi- 
tions of  this  type  therefore  are  not  an  essential 
part  of  such  contracts  and  it  may  be  doubted 
that  they  add  anything  to  the  protection  of  the 
customer  thereimder.  In  other  words,  if  exclu- 
sive arrangements  generally  were  abolished 
there  would  be  but  little  reason  for  assuming 
that  purchasers  would  be  unable  adequately  to 
protect  themselves  against  market  fluctuations. 
In  view  of  these  facts,  there  is  seldom,  if  ever, 
any  economic  necessity  that  long-term  contracts 
should  be  exclusive. 


CHAPTER  VI 


,  • 


BLACK  LISTS,  BOYCOTTS,  WHITE  LISTS,  ETC. 

The  title  of  this  chapter  conveys  so  adequately 
the  meaning  of  the  practices  discussed  that  no 
definition  of  them  is  required.  In  some  cases 
lists  of  dealers  to  whom  goods  should  not  be 
sold  have  been  circulated  generally  through  the  \ 
trade.  In  others,  lists  of  dealers  who  might  be 
sold  have  been  similarly  distributed.  In  yet 
other  instances  manufacturers  appear  to  have 
blacklisted  certain  organizations,  since  these 
have  been  consistently  refused  supplies  of  goods. 

Most  of  the  cases  of  blacklisting  and  boy- 
cotting which  the  writer  has  been  able  to  dis- 
cover are  in  connection  with  the  operations  of 
various  wholesale  and  retail  trade  organizations. 
In  these  cases  such  methods  usually  develop  out 
of  the  practice  known  as  classification,  a  term 
which  requires  some  explanation.  As  indicated 
by  the  writer  elsewhere,'  there  has  appeared  for 
some  years  past  a  noticeable  trend  toward  the 
creation  of  a  presmnably  more  economic 
system  in  the  distribution  of  commodities. 
This  tendency  has  manifested  itself  in  the 

'  American  Economic  Review,  III  (September,  1913),  555. 

97 


i*H 


*!i 


If. 


98 


Unfair  Competition 


I    'r 


11 


II 


increasingly  large  number  of  articles  which  are 
disposed  of  without  the  assistance  of  middle- 
men, either  the  wholesaler  or  the  retailer,  or 
both,  being  dispensed  with.  It  has  also  been 
accompanied  by  the  rise  of  the  chain  store 
and  mail-order  establishment.  As  a  result  of 
these  developments  the  interests  of  the  whole- 
salers or  jobbers  and  the  retailers  are  to  a  cer- 
tain extent  in  harmony,  in  that  they  both  desire 
to  prevent  shipments  directly  from  the  manu- 
facturer to  the  consumer.  In  addition,  the 
retailer  may  generally  be  said  to  be  interested 
in  preventing  any  shipments  from  the  whole- 
saler or  jobber  to  the  consumer,'  while  in  some 
cases  the  wholesaler  or  jobber  is  equally  inter- 
ested in  preventing  shipments  from  the  manu- 
facturer to  the  retailer.     In  addition,  the  rise 

« This  situation  is  indicated  in  the  following  quotation  taken 
from  the  Boston  agreement  of  the  lumber  trade  associations: 
"Second.  That  the  National  Wholesale  Lumber  Dealers'  Asso- 
ciation take  up  and  consider  the  pronounced  and  recognized  evils 
from  which  both  branches  ['both  branches'  means  wholesale 
and  retail]  are  suflFering,  viz: 

"i.  Sales  by  manufacturers  and  wholesalers  to  consumers. 

"2.  Sales  by  brokers,  agents,  and  commission  men  to  con- 
sumers. 

"3.  Sales  and  quotations  by  the  so-called  retail  dealers  to 
consumers,  through  agents,  and  by  methods  used  by  the  whole- 
saler in  soliciting  trade  from  retailers." 

Cf.  original  petition,  UniUd  States  v.  Eastern  States  Retail 
Lumber  Dealers'  Association,  U.S.C.C.  for  the  Southern  District 
oi  New  York,  Exhibit  F,  p.  81. 


\y 


Black  Lists,  Boycotts,  White  Lists       99 

of  the  mail-order  houses,  co-operative  associa- 
tions, and  similar  organizations  by  means  of 
which  the  middlemen's  charges  are  eliminated, 
has  interested  certain  associations  in  prevent- 
ing shipments  to  these  t)^es  of  organization 
either  entirely  or  except  at  prices  higher  than 
those  made  to  ordinary  retailers. 

Classification  may  be  said  to  be  one  of  the 
steps  in  the  attempt  to  confine  trade  to  what 
the  various  wholesale  and  retail  associations 
regard  as  its  legitimate  channels,  i.e.,  from 
manufacturer  to  wholesaler,  to  retailer,  to  con- 
sumer; and  measures  have  been  taken  and 
rules  formulated  to  classify  the  trade  into  these 
four  groups:  manufacturers,  wholesalers,  retail- 
ers, and  consumers.^  The  usual  method  is  the 
use  of  more  or  less  arbitrary  definitions  of  each 
one  of  these  terms,^  and  the  standing  of  any  con- 
cern in  the  trade  is  based  upon  the  classifica- 
tion adopted.  Mail-order  houses,  co-operative 
associations,  and  other  large  direct  sellers  are 
usually  classed  as  consumers  and,  regardless 

*  Sometimes  there  may  be  another  group,  as  brokers  and  com- 
mission men,  who  are  usually  separately  classified  and  have  a 
definite  standing. 

»0n  classification  compare  the  following  proceedings:  Bill 
of  complaint.  United  States  v.  Colorado  and  Wyoming  Lumber 
Dealers'  Association,  U.S.C.C.  for  the  District  of  Colorado, 
Eighth  Judicial  Circuit,  pp.   loff.;    original  petition,   United 


M 

I ' 


! 


lOO 


Unfair  Competition 


of  the  quantity  purchased,  are  entitled  only  to 
consumer  prices. 

Let  us  examine  briefly  the  manner  in  which 
this  classification  is  appUed.  In  the  first  place, 
several  trade  associations  pubUsh  trade  Hsts 
known  by  various  titles  as  "Red  Books," 
"Green  Books,"  or  "Blue  Books."  In  these 
lists  are  published  the  names  of  all  individuals, 
firms,  and  corporations  regarded  by  the  trade 
(in  accordance  with  the  rules  of  classification 
mentioned)  either  as  wholesalers  or  retailers, 
as  the  case  may  be.  Such  a  list  of  retailers 
would  indicate  to  manufacturers  or  wholesalers 
those  concerns  which  were  regarded  by  the 
trade  as  the  legitimate  customers  of  either  or 
both.  A  list  of  wholesalers  or  jobbers  would 
give  a  similar  indication  to  the  manufacturer. 
Only  those  individuals  and  concerns  appearing 
in  such  Usts  (or  in  separate  classification  sheets 
issued  by  some  organizations)  are  usually 
entitled  to  obtain  goods  at  the  trade  discounts 
which  are  allowed  the  different  classes.    Ob- 

SUUes  V.  Edward  E.  Hartwick,  U.S.C.C.  for  the  Eastern  District 
of  Michigan,  Southern  Division,  pp.  ii  ff.;  decree  of  injunction, 
United  States  v.  Southern  Wholesale  Grocers*  Association,  U.S.C.C. 
for  the  Northern  District  of  Alabama,  pp.  4flf.;  petition  in 
equity,  United  States  v.  Pacific  Coast  Plumbing  Supply  Asso- 
ciation, U.S.C.C.  for  the  Southern  District  of  California,  pp.  12  fit.; 
petition,  United  States  v.  Eastern  States  Retail  Lumber  Dealers' 
Association,  cit.  supra,  pp.  18-56. 


Black  Lists,  Boycotts,  White  Lists      loi 


viously  the  "Red,"  "Blue,"  and  "Green" 
books  operate  as  a  fair  list.  Concerns  not 
listed  are  of  two  classes:  first,  those  which 
are  not  regarded  by  the  trade  as  legitimate 
wholesalers  or  jobbers  on  the  one  hand,  or  asl 
legitimate  retailers  on  the  other,  including  \ 
usually  mail-order  houses  and  aU  other  direct- 
selling  organizations;  second,  those  concerns 
ordinarily  entitled  to  be  classified  but  whose 
names  may  have  been  removed  from  the  Hst 
because  of  some  violation  of  so-called  trade 
ethics. 

A  second  way  in  which  a  trade  association 
may  work  out  its  intention  to  confine  trade  to 
certain  channels  is  by  the  use  of  recommended 
lists.  Thus  a  retail  association  might  issue 
lists  of  wholesalers  or  of  wholesalers  and  manu- 
facturers from  whom  its  members  might  buy. 
Shipments  made  directly  to  consumers  by  such 
concerns  would,  when  discovered,  be  reported 
to  members  of  the  association;  and  the  impU- 
cation  drawn  from  such  reports  would  be  that 
association  members  should  cease  trading  with 
the  offending  concerns.  Such  reports  also 
have  often  contained  a  hst  of  previous  offenders 
who  have  been  restored  to  good  favor.  Gen- 
erally speaking,  this  restoration  has  been  condi- 
tional upon  the  payment  of  a  fine  by  the 


1 


i^  I 


I02 


Unfair  Competition 


III 


i; 


I'i 


I   11*11 

htl 


M^ 


offending    member.    An    aiustration    of    this 
practice  is  shown  in  the  following  circular: 

Official  Report  of  the  Eastern  States  Retail 
Lumber  Dealers'  Association,  i8  Broad- 
way, New  York,  N.Y.  ' 

Statement  to  members,  April,  i gag. —Yon  are  re- 
minded that  it  is  because  you  are  members  of  our 
association  and  have  an  interest  in  common  with  your 
fellow  members  in  the  information  contained  in  this 
statement,  that  they  communicate  it  to  you,  and  that 
they  communicate  it  to  you  in  the  strictest  confidence 
and  with  the  understanding  that  you  are  to  receive  it 
and  treat  it  in  the  same  way. 

The  following  are  reported  as  having  solicited, 
quoted,  or  as  having  sold  dh-ect  to  the  consumers: 

[Here  follow  the  names  of  several  score  concerns.] 

REMOVED  SINCE  LAST  REPORT 

[Here  follow  the  names  of  fifteen  concerns.] 
Members  upon  learning  of  any  instance  of  persons 
soliciting,  quoting,  or  selling  direct  to  consumers 
should  at  once  report  same,  and  in  so  doing  should, 
if  possible,  supply  the  foUowing  information:  The 
number  and  initials  of  car,  the  name  of  consumer  to 
whom  car  is  consigned,  the  initials  or  name  of  shipper, 
the  date  of  arrival  of  car,  the  place  of  delivery,  the 
point  of  origm.' 

'Origmal  petition,  United  States  v.  Eastern  States  RetaU 
Lumber  Dealers'  Association,  cit.  supra,  Exliibit  U,  pp.  98-100. 
A  number  of  similar  circulars  and  letters  might  be  quoted.  In 
this  connection  and  on  this  general  subject  cf.  petition,  United 


Black  ListSj  Boycotts,  White  Lists      103 

It  is  submitted  that  these  acts  on  the  part 
of  trade  associations  must  be  regarded  as 
unfair  competition.  Economically  fair  compe- 
tition demands  that  no  manufacturer  or  dealer 
shall  be  arbitrarily  restricted  as  to  his  cus- 
tomers at  the  dictation  of  some  group,  since  the 
efficiency  of  competitors  of  the  concerns  com- 
posing such  a  group  is  thereby  hampered  and 
restricted.  It  may  well  be  true  that  various 
trade  associations  deserve  at  least  some  meas- 
ure of  protection  against  so-called  illegitimate 
trading.  Indeed,  the  day  may  conceivably- 
come  when  it  will  be  recognized  that  some  form 
of  classification  is  economically  sound,  but  it  is 
certain  if  it  does  that  such  classification  must 
be  regulated,  controlled,  and  supervised  by 
some  governmental  authority.  Under  no  cir^ 
cumstances  should  an  association  or  similar; 
organized  group  be  permitted  arbitrarily  toi 

States  V.  Eastern  States  Retail  Lumber  Dealers'  Association,  cit, 
supra,  Exhibits  J,  K,  L,  O,  S,  T,  W,  X,  Y,  and  Z,  pp.  88flf.; 
petition,  United  States  v.  Willard  G.  Hollis,  U.S.C.C.  for  the 
District  of  Mmnesota,  Exhibit  A,  p.  69;  decree  of  injunction, 
United  States  v.  Southern  Grocers'  Association,  cit.  supra  p.  5;  peti- 
tion, United  States  v.  Plumbing  Association,  cit.  supra,  pp.  12-14; 
petition  in  equity,  United  States  v.  Master  Horseshoers'  National 
Protective  Association  of  America,  U.S.D.C.  for  the  Eastern  Dis- 
trict of  Michigan,  Southern  Division,  pp.  18  ff.;  petition  in 
equity,  United  States  v.  Philadelphia  Jobbing  Confectioners' 
Association,  U.S.D.C.  for  the  Eastern  District  of  Pennsylvania, 
PP-  5-9. 


,i    ^ 


I04 


Unfair  Competition 


I 


t  i 


blacklist  and   boycott  concerns  because  the 
latter  sell  to  competitors  of  its  members. 

Another  side  of  this  question  is,  of  course, 
the  fact  that  the  development  of  the  methods 
here  discussed  has,  to  a  considerable  degree, 
been  due  to  the  growth  of  larger  units  of  selling 
organization:    the   large   retailer;    the   cham 
store;    the  department  store;    the  mail-order 
house,  and  also  the  co-operative  association. 
To  a  considerable  extent  the  object  of  such 
methods  has  been  to  prevent  the  economic  effi- 
ciency of  these  larger  units  from  obtaining  full 
play.    Hence  the  economic  soundness  of  classi- 
fication  even   under  government  supervision 
as  suggested  is  open  to  dispute.     Many  persons 
undoubtedly  beUeve  that  the  present  system 
of  distribution  is  uneconomic  and  that  the 
development  of  the  larger  units  of  organization 
is  a  necessary  and  desirable  step  in  the  direction 
of  greater  distributive  economy.    Their  theory 
is  that  the  enormous  increase  in  the  number  of 
middlemen  and  persons  engaged  in  marketing' 
is  largely  responsible  for  the  high  cost  of  Hving. 
If  the  economic  efficiency  of  the  larger  units 
is  allowed  to  operate  freely,  many  of  these 
middlemen   will   be   eliminated.    They   hold, 
therefore,    that    the    imposition    of    artificial 

'  Cf.  Hany  Tipper,  The  New  Business,  pp.  88  S. 


Ilii 


Black  Lists,  Boycotts,  White  Lists     105 


1 


restrictions  upon  the  efficiency  of  these  units 
(even  though  by  governmental  authority)  would 
be  not  only  unfair  to  the  organizations  them- 
selves but  would  assist  in  the  perpetuation  of 
the  present  imeconomic  system  whereby  an 
ever-iQcreasing  army  of  middlemen  distributes 
goods  to  the  consumer  at  an  ever-increasing 
expense. 

Another  of  the  uses  of  the  principle  of  boy- 
cotting is  in  connection  with  the  enforcement 
of  the  exclusive  arrangements  which  have  been 
discussed  in  the  preceding  section. 

The  ability  to  secure  exclusive  use,  purchas- 
ing, or  selling,  etc.,  depends  primarily  upon 
either  one  or  both  of  two  factors: 

A.  Rebates. 

B.  The  right  of  refusing  to  supply  goods  or  of 
supplying  only  at  discriminatory  prices. 

While  the  more  common  method  of  the  two 
is  perhaps  the  rebate,'  yet  in  the  last  analysis 
the  enforcement  of  all  such  arrangements  rests 
upon  the  power  of  boycotting  organizations  or 
persons  refusing  exclusively  to  use,  purchase, 
sell,  etc.,  certain  goods  or  commodities. 

A  good  illustration  of  this  point  is  foimd  in 
the  so-called  "violation  tickler"  of  the  Eastman 
Kodak  Company.    This  tickler  seems  to  have 

*  For  a  discussion  of  this  aspect  of  rebates  see  the  next  chapter. 


t       % 


n 


'H 


m 


io6 


Unfair  Competition 


riiJ 


been  used  for  the  purpose  of  recording  infor- 
mation m  regard  to  dealers  and  others  violating 
the  Kodak  terms  of  sale  together  with  the 
action  taken  in  such  cases.  As  previously 
indicated,  these  terms  of  sale  contained  exclu- 
sive arrangements/  and  some  of  the  reports 
of  the  tickler  deal  with  violations  of  such  pro- 
visions. For  illustrative  purposes  we  shall, 
for  reasons  which  will  appear  later,  confine  our 
extracts  from  this  document  to  the  action  taken 
in  case  of  the  sale  or  use  of  "  Artura,"  a  pho- 
tographic paper  manufactured  by  the  Artura 
Photographic  Paper  Company. 

VIOLATION 

J.  Bourgholtzer,  photographer,  Washington,  Ind. 
Classed  E.  K.  "B." 

7/14/8.    Goehn  called  upon  the  above  party  and 
found  him  using  Artura  in  his  professional  work. 

8/9/8.  Campbell  called  and  confirmed  preceding 
report.  He  explained  our  terms  of  sale  and  Bourg- 
holtzer claimed  he  had  never  known  it  was  a  violation 
of  same  to  use  other  products.  Promised  to  comply 
faithfully  in  the  future  and  use  E.  K.  paper  only. 
No  further  action  at  present.  q^  p^  ^^ 

E. 

VIOLATION 

W.  N.  Bulhngton,  photographer,  Greenville,  Ala. 
E.  K.  F.  dealer. 

'  Cf .  preceding  chapter. 


Black  Lists,  Boycotts,  White  Lists      107 


11/23/08.  W.  G.  Richardson,  paper  demonstrator, 
reported  this  dealer  to  be  using  Artura.  Mr.  Bulling- 
ton  claimed  he  did  not  understand  that  there  were 
objections  to  his  doing  so.  The  matter  was  fully 
explained  by  the  demonstrator,  and  the  dealer  said 
he  would  make  no  further  purchases,  discontinuing  the 
use  of  Artura  as  soon  as  his  present  stock,  a  part  of 
a  gross,  was  exhausted. 

6/1/09.  Wrote  Mr.  Gazley  to  ascertain  if  this  dealer 
was  now  using  our  papers  exclusively;  if  not,  to  place 
the  line  with  some  desirable  druggist  or  other  local 
merchant,  advising  Mr.  Bullington  that  we  would  be 
imable  to  extend  him  trade  rates  in  the  future. 

6/10/09.  E.  W.  Gazley  writes  as  follows:  "I  found 
Mr.  Bullington  using  Artura  paper.  Succeeded  in 
getting  into  his  dark  room  and  found  one  gross  and 
two  parts  of  gross  packages,  so  did  not  solicit  an  order. 
Think  we  will  have  no  trouble  in  placing  the  line  with 
C.  C.  Stewart  a  little  later." 

Remove  name  from  dealers'  list.  Wrote  Gazley, 
inquiring  if  he  notified  dealer  that  we  would  be  unable 
to  extend  discounts  in  the  future. 

Settled.  C.  F.  A. 

N.  D. 

SECOND  VIOLATION 

Harry  L.  Plummer,  photographer,  Lewiston,  Me. 
Exceptional  "E.  K.  A.'*  dealer. 

8/29/8.  Simonds  reports  on  Form  105-B  using 
Artura  paper. 

9/10/8.    Wrote  Newhall  to  investigate. 

C.  F.  A. 
N.  D. 


! 


:    \ 


[. 


w 


M 


■'  I 


tIF 
I  lit; 


io8 


Unfair  Competition 


Oct.  8th.  Newhall  called  and  reports  he  saw  Mr. 
Plummer  and  had  a  long  talk  with  him.  Mr.  Plummer 
admitted  he  was  using  some  Artura  and  stated  his 
studio  business  amounted  more  to  him  than  the  sale 
of  amateur  supplies.  He  is  very  favorably  impressed 
with  Artura  and  would  not  consider  discontinuing  its 
use.  Mr.  Newhall  explained  to  him  we  could  not 
continue  allowing  him  discounts  unless  he  was  willing 
to  comply  strictly  and  literally  with  our  terms 
of  sale. 

Oct.  14th.    Removed  from  list. 
Settled. 

C.  F.  A. 


VIOLATION 

E.  A.  Walcott,  photographer,  Barton,  Vt.    Classed 
as  an  "E.K.F."  dealer. 

Reported    by    Simonds    as    using    Artura   paper. 
Wrote  Newhall  to  investigate. 

7/22/8.  Newhall  reports  called  on  above  as  in- 
structed and  found  he  was  still  using  Artura.  Would 
not  listen  to  any  proposition  to  comply  with  our  terms 
of  sale,  as  he  could  not  get  the  results  on  our  paper 
that  he  can  on  Artura.  States  when  an  E.  K.  demon- 
strator can  show  him  equal  quality  in  E.  K.  goods  he 
will  then  use  them.  NewhaU  states  the  town  is  very 
small  and  this  party  is  the  only  one  who  would  be  apt 
to  handle  the  goods— one  or  two  of  the  other  mer- 
chants have  had  them  in  the  past  and  been  unsuc- 
cessful.  He  also  states  in  all  probability  should 
we    take   him    off  list   that  our  dealer  at  Barton 


>V^I 


Bldck  Lists,  Boycotts,  White  Lists      109 

Landing  would  be  able  to  take  care  of  the  Barton 
trade. 

Remove  name  from  list. 

SetUed.  C.  F.  A.* 

E. 

The  uneconomic  character  of  arrangements 
thus  restricting  or  attempting  to  restrict  the 
sales  of  competitors'  goods  may  be  well  illus- 
trated by  considering  the  facts  with  reference 
to  Artura  paper. 

The  Artura  Photographic  Paper  Company 
began  operations  about  1901.  With  the  change 
from  printing-out  to  gas-light  papers  came  some 
relief  from  the  difficulty  independent  manufac- 
turers had  had  in  securing  satisfactory  raw- 
paper  stock.^*  Under  the  gas-light  method  it 
became  possible  to  utilize  a  raw  stock  of  a 
lower  quaUty  than  that  required  for  printing- 
out   purposes,   as   the   emulsions  in  gas-light 

*  Government  Exhibit  221,  violation  tickler  of  Eastman 
Kodak  Co.,  record,  United  States  v.  Eastman  Kodak  Company ^ 
cit.  supra,  Vol.  VI,  pp.  2713-2714,  2723,  2900,  2959.  The  New 
York  Trust  Investigation  of  1897  contains  a  list  of  a  large  number 
of  concerns  whose  consignment  contracts  with  the  American 
Tobacco  Company  were  revoked  because  they  had  handled 
opposition  goods.  That  this  has  been  a  not  unconmion  practice 
there  seems  little  reason  to  doubt. 

»To  understand  the  situation  which  existed  in  regard  to 
raw-paper  stock  in  the  years  immediately  following  1898,  cf. 
in  chap,  viii  the  Eastman  arrangements  with  the  foreign  raw- 
paper  manufacturers. 


'I  I 


till 


li 


iilli 


!<ltt 


ill 


J 


no  Unfair  Competition 

papers  were  not  as  readfly  affected  by  metallic 
impurities. 

The  rapid  rise  of  Artura  paper  is  indicated 
by  the  increase  in  its  volume  of  sales. 

1901 $     2,921.31 

1902 8,644.41 

1903 14,327.20 

1904 24,572 .92 

1905 46,695.34 

1906 98,890.36 

1907 228,979.79 

1908 3S3»Si6. 49 

1909  (9  months) 329,272 .44' 

111  the  gas-light  papers  great  difficulty 
appears  to  have  been  experienced  in  securing 
the  proper  correlation  between  the  paper  and 
the  emulsion.  Eastman  quite  frankly  admitted 
that  his  company  was  unable  to  secure  the 
results  that  the  Artxira  people  obtained  when 
he  stated  that  "We  could  not  make  paper  of  the 
type  of  Artura  paper."*  This,  moreover,  was 
in  the  face  of  the  fact  that  the  General  Paper 
Company   had   experimented   for   two   years 

"Early,  Yauck,  Colfax,  and  Eastman  agreement,  October 
18,  1909,  re  Artura  Photographic  Paper  Company,  Government 
Exhibit  25,  record.  United  StaUs  v.  Eastman  Kodak  Company,  cit. 
supra,  Vol.  V,  p.  2073. 

*  George  Eastman,  ibid.,  Vol.  Ill,  p.  1344. 


Black  Lists,  Boycotts,  White  Lists 


III 


endeavoring  to  develop  a  paper  suitable  for 
use  with  the  Artura  type  of  emulsion.  "The 
General  Paper  Company's  paper,"  however, 
"blistered,  among  other  things  and  would  not 
lie  flat  in  the  big  pictures."^ 

Can  it  be  regarded  as  economically  justifiable 
in  the  face  of  these  facts  to  permit  the  marketing 
of  Artura  paper  to  be  hampered  by  the  exclu- 
sive arrangements  of  the  Kodak  Company 
and  by  the  cutting  off  of  the  supplies  of 
dealers  when  they  refused  to  comply  there- 
with? As  Mr.  Dailey  testified,  the  dealer 
soon  found  that  "the  paper  alone  is  not 
enough.'**  It  was  necessary  for  him  to  have 
other  photographic  supplies  to  sell  and  to 
make  a  profit  on  if  he  was  to  continue  in 
business. 

It  is  the  accepted  theory  that  a  private  busi- 
ness has  the  right  to  select  its  own  customers. 
In  the  past,  therefore,  if  a  dealer  or  other  per- 
son has  not  sold,  purchased,  or  used  exclusively 
its  goods,  an  organization  has  possessed  the 
right  of  ceasing  to  supply  him.  In  so  far 
as  exclusive  arrangements  are  unfair,  how- 
ever, the  cutting  off  of  dealers  who  refuse 
to  comply   with  such   arrangements,  or   the 


!  i 


i' 


I  , 


*  George  Eastman,  ibid. 
'  Cf .  preceding  chapter. 


I 

i 


112 


Unfair  Competition 


refusal  to  sell  to  them  except  on  disadvan- 
tageous terms,  ought  also  to  be  regarded  as 
unfair.^ 

3  Australia  and  New  Zealand  perhaps  have  gone  farthest  in 
the  direction  of  the  limitation  of  the  right  to  select  customers. 
The  latter's  laws  declare  that:  "Every  person  commits  an 
offense  who,  either  as  principal  or  agent,  refuses,  either  abso- 
lutely or  except  upon  disadvantageous  or  relatively  disadvan" 
tageous  conditions,  to  sell  or  supply  to  any  other  person,  or  to 
purchase  from  any  other  person,  any  goods  for  the  reason  that 
the  latter  person — 

"  (fl)  Deals  or  has  dealt  or  will  deal,  or  intends  to  deal,  or  has 
not  undertaken  or  will  not  undertake  not  to  deal  with  any  person 
or  class  of  persons,  either  in  relation  to  any  particular  goods  or 
generally;  or 


it , 


'(c)  Does  not  act  or  has  not  acted  or  will  not  act,  or  does  not 
intend  to  act,  or  has  not  undertaken  or  will  not  undertake  to  act, 
In  obedience  to  or  in  conformity  with  the  determinations,  direc- 
tions, suggestions,  or  requests  of  any  commercial  trust  with 
respect  to  the  sale,  purchase,  or  supply  of  any  goods." — Acts  for 
the  Repression  of  Monopolies  in  Trade  or  Commerce,  New  Zea- 
land Stats.  1,  Geo.  V,  1910,  No.  32,  Sec.  4;  quoted  in  N.  B. 
Williams,  Laws  on  Trusts  and  Monopolies  (ed.  19 14),  pp.  464-65. 

The  Australian  law  is  similar. 

It  is  the  view  of  the  writer  that  a  refusal  to  sell  on  account 
of  a  failure  to  conform  to  exclusive  arrangements  would  amount 
to  a  violation  of  section  5  of  the  Trade  Commission  Act  in  so  far 
as  the  exclusive  arrangements  were  themselves  unfair.  As  has 
been  previously  pointed  out,  section  3  of  the  Clayton  Act  also 
declares  unlawful  certain  exclusive  arrangements  "where  the 
effect  ....  may  be  to  substantially  lessen  competition  or  tend 
to  create  a  monopoly."  Refusals  to  sell,  therefore,  if  based  on 
nonconformance  with  the  exclusive  conditions  forbidden  by 
this  section,  may  perhaps  also  be  regarded  as  violating  the 
Clayton  Act. 


I 


CHAPTER  VII 

REBATES    AND    PREFERENTIAL    ARRANGE- 
MENTS 

Discriminations  in  the  form  of  rebates  and 
preferential  contracts  are  made  by  two  classes 
of  organizations: 

A.  Manufacturing  and  trading  companies. 

B.  Transportation  companies. 

A.  One  of  the  most  common  methods  of 
maintaining  exclusive  arrangements  is  the  use 
of  a  rebate.  The  factors'  agreements  of  the 
American  Tobacco  Company  from  which  the 
exclusive  selling  clause  was  quoted  in  chap,  v 
also  contained  the  following  provision: 

Eighth.  If,  however,  you  handle  cigarettes  of  our 
manufacture  exclusively,  and  do  not  sell  or  distribute, 
or  in  any  way  aid  in  the  sale,  or  distribution  of,  cigar- 
ettes of  other  manufacture,  and  if  you,  in  all  respects, 
fully  comply  with  the  terms  and  conditions  of  this 
agreement,  we  will  pay  you  an  additional  commission 
of  seven  and  one-half  (7§)  per  cent,  on  the  amount 
realized  by  you  from  the  sale  of  the  cigarettes  which 
we  may  consign  to  you.^ 

» Report  and  proceedings  of  the  joint  committee  of  the 
Senate  and  Assembly  appointed  to  investigate  trusts,  state  of 
New  York,  Senate  Document  No.  40,  1897,  p.  880. 

"3 


I 


i 


114 


Unfair  Competition 


I  ii 


^iiiii' 


The  exclusive  sales  contract  for  photographic 
paper  in  effect  May  i,  1901,  contained  this 
clause: 

On  or  about  the  20th  of  each  month  a  memorandum 
showing  amount  of  previous  month's  net  paper  pur- 
chases wiU  be  sent  to  each  dealer  from  each  factory. 
If  this  memorandum  is  returned  at  the  time  indicated 
thereon,  properly  signed  and  verified  to  the  satis- 
faction of  this  company,  a  credit  amounting  to  12  per 
cent  on  the  net  purchases  wiU  be  made  to  the  dealer 
so  returning  same. 

Fifteen  per  cent  represents  the  full  trade  discount 
on  paper  but  an  extra  credit,  as  stated  above,  is  ofered 
as  a  special  consideration  for  advantages  accruing 
....  through  having  our  specialties  sold  in  original 
packages  and  at  a  price  that  affords  the  dealer  a  profit 
large  enough  to  warrant  his  energetically  and  excl'u- 
sively  pushing  their  sale.' 

Of  like  nature  is  a  provision  drawn  from  the 
"jobbers'  Hcense  agreement''  of  the  recently 
dissolved  Bathtub  Trust,  which  reads: 

7.  If  all  the  conditions  of  this  agreement  have  been 
comphed  with  and  you  have  confined  your  purchases  to 
Licensed  Manufacturers,  we  wiU  pay  you  rebates  on 

'  Italics  are  the  writer's.  Quotation  is  taken  from  the  terms 
of  sale  supplied  by  W.  S.  HubbeU,  counsel  for  the  General  Aristo 
Company,  Report  of  the  United  States  Industrial  Commission  on 
Trusts  and  Industrial  Combinations  (second  volume  on. this  sub- 
ject), Vol.  XIII,  p.  192.  At  that  time  the  Eastman  Kodak 
Company  was  the  trade  agent  to  market  aU  the  goods  of  the 
General  Aristo  Company. 


Rebates  and  Preferential  Arrangements    115 


such  purchases  as  you   have  made  from   us  ...  . 
[schedule  of  discount  follows].' 

An  interesting  rebate  arrangement  designed 
to  secure  exclusive  purchasing  and  selling  was 
utilized  by  the  Continental  Tobacco  Company 
in  1902.  This  concern  assigned  to  an  intending 
purchaser  a  certain  amount  of  its  goods,  which 
amount  he  was  required  to  purchase  during 
each  subsequent  period  of  four  months.  The 
allotment  thus  made  was  a  great  deal  in  excess 
of  the  amount  which  the  purchaser  would  be 
able  to  dispose  of  during  that  period;  and,  more- 
over, the  prices  charged  therefor  were  so  high 
that  if  the  customer  paid  them,  the  bu3dng  and 
selling  would  not  be  profitable.  Each  purchaser 
was  required  to  refrain  from  dealing  in  plug 
chewing  tobacco  made  by  independent  and 
competing  manufacturers,  and  if  he  complied 
with  this  restriction,  his  allotment  was  inva- 
riably reduced  to  the  amount  he  was  able  to 
sell.  At  the  same  time  he  was  rebated  such 
a  percentage  of  the  aggregate  price  of  the  goods 
acquired  that  the  handling  of  these  commodities 
was,  by  reason  of  this  rebate,  made  profitable 
to  him.' 

*  Record,  United  States  v.  Standard  Sanitary  Manufacturing 
Company,  cit.  supra,  Vol.  II,  pp.  34-35.  Italics  are  the  writer's. 
Cf.  chap.  V,  supra. 

'  Whitewell  v.  Continental  Tobacco  Company,  125  Fed.  454. 


I! 


'  )il 


II 


ii6 


Unfair  Competition 


ili 


I! 


i! 


The  discounts  made  by  the  Continental  Wall 
Paper  Company  to  the  jobbing  trade  depended 
upon  conformance  with  the  exclusive-purchasing 
arrangements  cited  in  a  preceding  chapter.. 
The  same  was  true  of  the  agreements  of  the 
jobbing  trade  with  the  Pottery  Association.* 
Similarly,  so  it  is  alleged,  the  Cleveland  Stone 
Company  secured  the  exclusive  handling  of  its 
grindstones,  offering  a  rebate  of  i2§  per  cent 
on  purchases  made  by  jobbers  in  the  period  of 
the  preceding  six  months  provided  they  had 
purchased  exclusively  from  it.* 

Differing  somewhat  from  these  rebate  ar- 
rangements was  the  plan  of  the  Cora  Products 
Refining  Company.  In  November,  1906,  just 
prior  to  the  period  when  the  first  independent 
glucose  company  placed  its  products  upon  the 
market,  this  organization  was  alleged  to  have 
offered  to  the  trade  a  profit-sharmg  or  rebate 
plan,  the  purpose  of  which  was  to  secure 
exclusive  purchasing.  The  Cora  Products  Re- 
fining Company  and  its  subsidiaries  agreed  to 
set  aside  for  payment  to  their  customers,  out 

« Continental  Wall  Paper  Company  v.  Lends  Voight  fir  Sons 
Company,  148  Fed.  939.    Cf.  chap,  v,  supra. 

'Morony  Hardware  Company  v.  Goodwin  Pottery  Company, 
120  S.W.  1088.    Cf.  chap.  V,  supra. 

3  Petition,  United  States  v.  Cleveland  Stone  Company,  cit. 
supra,  p.  20.    Cf.  chap,  v,  supra. 


I 


Rebates  and  Preferential  Arrangements    117 

of  the  profits  of  the  last  six  months  of  1906, 
a  sima  equal  to  ten  cents  per  hundred  pounds 
upon  all  sales  of  glucose  and  grape  sugar,  the 
payment  to  be  made  on  December  31,  1907,  on 
the  condition  that  customers  should  purchase 
exclusively  from  the  company  during  the 
balance  of  the  year  1906,  and  all  of  the  year  1907, 
It  was  charged  that  this  plan  was  continued 
until  1910.^ 

If  exclusive  contracts  and  arrangements  are. 
imfair,  it  would  appear  to  foUow  that  all  rebates/ 
offered  for  the  purpose  of  effecting  such  arrange-  ^ 
ments  are  likewise  unfair.    As  indicated  in  the 
preceding  chapter,  the  ability  to  secure  exclusive 
arrangements    usually    depends    either    upon 
rebates  or  upon  the  power  to  refuse  to  supply 
goods,  the  latter  either  absolutely  or  except 
under   disadvantageous   conditions.    If   these 
two   things*   were   eliminated,   no   person  or 
organization  need  use,  sell,  or  purchase,  etc., 
exclusively  except  as  a  matter  of  choice  and 

*  Petition,  United  States  v.  Corn  Products  Refining  Company j 
U.S.D.C.  for  the  Southern  District  of  New  York,  pp.  20-21. 

^  Australia  and  New  Zealand  appear  to  have  prohibited  both 
practices  in  such  connection.  In  the  preceding  chapter  there 
were  quoted  the  provisions  of  her  laws  forbidding  the  refusal  of 
goods  under  certain  conditions  (cf.  footnote,  p.  112).  The  same 
law  also  declares:  "Every  person  commits  an  offense  who,  either 
as  principal  or  agent,  in  respect  of  dealings  in  any  goods,  gives, 
offers,  or  agrees  to  give  to  any  other  person  any  rebate,  refund, 


>i 


ii8 


Unfair  Competition 


upon  the  basis  of  the  quality  and  prices  of  the 
goods  offered.  And  at  any  time  he  or  it  would 
be  perfectly  free  to  introduce  or  deal  in  goods 
of  an  equally  satisfactory  or  better  quality  or 
of  an  equivalent  or  lower  price.' 

discount,  concession,  aUowance,  reward,  or  other  valuable  con- 
sideration for  the  reason  or  upon  the  express  or  implied  condition 
that  the  latter  person — 

"  (a)  Deals  or  has  dealt  or  will  deal,  or  mtends  or  undertakes 
or  has  undertaken  or  will  undertake  to  deal,  exclusively  or 
principally,  or  to  such  an  extent  as  amounts  to  exclusive  or 
principal  dealing,  with  any  person  or  class  of  persons  either  in 
relation  to  any  particular  goods  or  generally;  or 

"{b)  Does  not  deal  or  has  not  dealt  or  will  not  deal,  or 
intends  or  undertakes  or  has  undertaken  or  will  undertake  not 
to  deal,  with  any  person  or  class  of  persons,  either  in  relation  to 
any  particular  goods  or  generally;  or 

"  ic)  Restricts  or  has  restricted  or  will  restrict,  or  intends  or 
undertakes  or  has  undertaken  or  will  undertake  to  restrict,  his 
dealing  with  any  person  or  class  of  persons,  either  in  relation 
to  any  particular  goods  or  generally;  or 

"  (c)  Acts  or  has  acted  or  will  act,  or  intends  or  undertakes  or 
has  undertaken  or  will  undertake  to  act,  in  obedience  to  or  in 
conformity  with  the  determinations,  directions,  suggestions,  or 
requests  of  any  commercial  trust  with  respect  to  the  sale,  pur- 
chase, or  supply  of  any  goods."— Acts  for  the  Repression  of 
Monopolies  in  Trade  or  Commerce,  New  Zealand  Stats,  i,  Geo. 
V,  igio.  No.  32,  Sec.  3;  quoted  in  N.  B.  Williams,  Laws  on 
Trusts  and  Monopolies,  p.  464.  Australia  similarly  limits  the 
right  to  select  customers. 

» The  writer  is  inclined  to  consider  that  rebates  and  prefer- 
ences used  to  procure  conformance  with  exclusive  arrangements 
constitute  violations  of  section  5  of  the  Trade  Commission  Act 
in  so  far  as  the  exclusive  conditions  are  themselves  unfair.  In 
addition,  section  3  of  the  Clayton  Act  declares  unlawful  rebates 
and  discounts  used  to  maintain  exclusive  arrangements  "where 
the  effect ....  may  be  to  substantially  lessen  competition  or 
tend  to  create  a  monopoly." 


Rebates  and  Preferential  Arrangements    119 

The  rebate  is  probably  a  more  effective  in- 
stnmient  for  enforcing  exclusive  arrangements 
than  is  the  right  of  refusing  goods.  This  fact 
perhaps  accounts  for  the  preference  given  it 
in  connection  with  such  arrangements.  The 
rebate  plan  makes  a  strong  appeal  to  the 
cupidity  of  the  purchaser  or  dealer,  and  it  does 
not  usually  appear  compulsory  in  its  nature.' 
The  bald  statement  that  goods  must  be  used, 
sold,  or  purchased  exclusively,  together  with 
a  declaration  that  goods  will  be  otherwise 
refused,  is  not  unlikely  to  arouse  antagonism. 
The  hostility  thus  developed  may  result  in  a 
refusal  by  certain  organizations  to  enter  into 
an  exclusive  arrangement  in  the  first  instance 
or,  once  having  done  so,  to  abide  by  its  terms. 
Furthermore,  it  should  be  thoroughly  appre- 
ciated that  the  mere  fact  that  rebates  are  given 
in  no  way  lessens  the  power  of  the  manufacturer 
to  refuse  goods.  It  would  be  a  most  erroneous 
interpretation  to  assiune  that,  because  rebate 
allowances  are  made,  the  only  penalty  for  failure 
to  conform  to  exclusive  conditions  would  be  the 
loss  of  the  rebate.  Undoubtedly  this  allow- 
ance would  be  sacrificed,  but  there  might  be 
withdrawn  in  addition  the  privilege  of  obtaining 

'  In  this  connection  note  the  wording  of  the  rebate  clauses 
which  have  been  quoted  in  this  chapter. 


1 20 


Unfair  Competition 


further  suppKes  of  goods  or  commodities.  It 
is  scarcely  conceivable  that  a  manufacturer 
or  seller  will  for  any  continued  length  of  time 
merely  refuse  the  rebate  and  continue  to  sell 
organizations  declining  to  comply  with  the 
exclusive  arrangement.  No  better  proof  of 
this  can  be  cited  than  a  bit  of  evidence  from 
the  Eastman  Kodak  case.  It  will  be  recalled 
that  the  conditional  credit  system  of  the  Kodak 
Combination  gave  a  15  per  cent  discount  to 
the  dealer  plus  an  additional  12  per  cent  upon 
his  certifying  that  he  had  complied  with  the 
rules,  including  the  requirement  of  exclusively 
pushing  the  sale  of  Eastman  products.' 
Although  by  the  terms  of  the  offer  any  dealer 
could  apparently  buy  the  goods  at  the  regular 
trade  discount  of  15  per  cent,  if  he  desired  to 
handle  competing  goods,  the  instructions  to  ad- 
justers which  were  dated  March  29, 1900,  read: 

If,  for  instance,  a  dealer  says  to  you  that  he  is  willing 
to  forfeit  the  rebate  but  intends  to  continue  handUng 
our  goods,  then  you  should  tell  him  that  we  could  not 

afford  to  consent  to  that "If  a  dealer  will  not 

comply  with  our  terms  of  sale,  the  probabilities  are 
that  it  is  not  to  our  interests  to  sell  him."^ 

«Cf.  supra,  p.  114. 

'  Government  Exhibit  31,  record,  United  States  v.  Eastman 
Kodak  Company,  cU.  supra.  Vol.  V,  p.  2095. 


H* 


Rebates  and  Preferential  Arrangements    121 

Mr.  Alexander,  a  Philadelphia  dealer,  who 
had  handled  Velox  papers  before  the  company 
manufacturing  them  sold  out,  was  visited  by 
a  Mr.  Parmalee  of  the  Eastman  Kodak  Com- 
pany, who  found  competing  paper  on  his 
shelves.  Mr.  Alexander  said  that  he  was  will- 
ing to  continue  to  do  business  on  the  15  per 
cent  basis  but  wished  to  continue  to  handle 
competing  goods.  Mr.  Parmalee  stated  that 
"anyone  handling  other  products  besides  theirs 
would  not  be  allowed  to  handle  them,*'  and 
he  further  stated  that  he  could  not  accept  any 
orders.  Thereafter  Mr.  Alexander's  orders  were 
declined.* 

Two  decidedly  interesting  contracts  are  those 
of  the  Electric  Lamp  Combination  and  the 
American  Can  Company.  The  government 
charged  the  Electric  Lamp  Combination  with 
entering  into  preferential  contracts  with  the 
Libby  Glass  Company,  the  Fostoria  Bulb  and 
Bottle  Company,  the  Phoenix  Glass  Company, 
and  the  Coming  Glass  Works — "substantially 
the  only  manufacturers"  of  glass  bulbs  and 
tubing  in  the  United  States.  On  condition 
that  these  concerns  should  sell  to  independent 
lamp  manufacturers  only  at  higher  prices  than 
it  was  itself  compelled  to  pay,  the  combination 

*  Record,  ibid..  Vol.  II,  pp.  812-13. 


.! 


. 


122 


Unfair  Competition 


agreed  to  purchase  from  them  its  entire  supply 
of  these  materials.  A  contract  of  a  similar 
natiure  was  also  made  with  the  Providence 
Gas  Burner  Company,  "the  only  base  manu- 
facturer in  the  United  States."' 

The  minutes  of  the  United  States  Steel  Cor- 
poration of  April  17,  1902,  contain  the  record 
of  a  vote  agreeing  to  a  preferential  contract 
upon  tin  plate  to  be  suppUed  to  the  American 
Can  Company.  This  contract  was  to  and  did 
run  for  five  years.  It  was  followed  by  a  second 
five-year  contract,  dated  December  i,  1908, 
and  a  third  contract  for  six  years,  dated  April 
28,  1913.  By  the  terms  of  the  contract  of 
December  i,  1908,  the  American  Can  Com- 
pany agreed  to  buy  99 . 9  per  cent  of  its  domestic 
requirements  from  the  American  Sheet  and 
Tin  Plate  Company,*  the  latter  in  return  agree- 
ing to  allow  the  American  Can  Company  a 
scale  of  preferentials  from  their  net  selling 
schedule,  as  follows: 

Preferential 

$3 . 85  or  higher  per  base  box. . 22 J  cents  per  base  box 
3.80  per  base  box 2if     «      «      «      « 


3. 75 


20f 


(( 


« Petition,  United  States  v.  General  Electric  Company,  cii, 
supra,  pp.  35-36. 

*  A  subsidiary  of  the  United  States  Steel  Corporation  formed 
by  the  consolidation  of  the  American  Sheet  Steel  and  American 
Tin  Plate  companies. 


u 


a 


u 
u 
u 
a 


u 


a 


Rebates  and  Preferential  Arrangements    123 

Preferential 

3 .  70  per  base  box igf  cents  per  base  box 

3.65 
360 

3. 55 
350 
3-45 
3  40 

3-35 
330 

3.25 
3.20 

315 
3.10 

305 
3.00 


u 
a 
a 
u 
u 
a 


u 
u 
a 
it 
u 


a 


a 


i8i 
18J 

ni 

i6i 
iSf 
IS 

I4I 

I3i 

12  J 
Hi 

lof 


a 


u 


a 


u 


u 

u 

a 

u 

a 

a 

a 

a 

a 

u 

u 

u 

u 

a 

u 

u 

u 

u 

u 


2 .  95  or  lower  per  base  box. . .  10 
On  black  plate,  black  and  galvanized  sheets 

15  cents  per  100  lbs. 
On  galvanized  wasters $1 .  00  a  net  ton' 

In  the  exclusive  arrangements  of  manufac- 
turing and  trading  companies,  and  in  discrimi- 
nations used  to  secure  their  adoption  the 
unfairness  which  usually  results  is  one  toward 
the  competitors  of  the  organization  using 
these  conditions.  The  manufacturer's  exclusive 
arrangements  and  rebates  for  compliance  there- 
with tend  to  close  the  channels  of  distribution 
to  the  goods  of  his  competitors.    In  the  case 

'  Petitioner's  Exhibit  No.  22,  record,  United  States  v.  American 
Can  Company,  cit.  supra,  Vol.  I,  pp.  215-17. 


\ 


>       ti 


i 


1; 


124 


Unfair  Competition 


of  preferential  arrangements  like  those  of  the 
American  Can  Company  with  the  American 
Sheet  and  Tin  Plate  Company,  however,  a 
double  unfairness  may  exist.  According  to  the 
theory  submitted  in  the  chapter  on  exclusive 
contracts  and  arrangements,  such  a  contract 
is  unfair  to  the  competitors  of  the  American 
Sheet  and  Tin  Plate  Company  in  practically 
prohibiting  the  American  Can  Company  from 
purchasing  from  them.  In  addition,  however, 
it  is  most  emphatically  unfair  to  the  competi- 
tors of  the  American  Can  Company.  The 
latter  point  appears  more  clearly  when  the 
following  clause  of  the  contract  of  December  i, 
1908,  is  considered: 

American  Sheet  and  Tin  Plate  Company  agrees 
that  if  it  should  at  any  time  during  the  term  of  this 
contract  give  or  allow  a  preferential  ofif  its  net  prevail- 
ing prices  on  coke  plates  for  domestic  use  to  any  other 
customer  in  the  United  States,  that  thereupon  an 
additional  preferential  shall  be  given  of  the  same 
amount  per  box  on  the  same  number  or  [sic]  boxes  to 
American  Can  Company.' 

By  no  possibility  therefore  in  the  face  of  this 
provision  could  competing  can  manufacturers 
secure  a  price  which  would  place  them  upon 

'Petitioner's  Exhibit  No.  22,  record,  United  States  v.  Ameri- 
can Can  Company,  cit.  supra,  Vol.  I,  p.  216. 


Rebates  and  Preferential  Arrangements    125 

an  equal  footing  with  the  Can  Company  even 
though  they  were  likewise  to  agree  to  purchase 
all  their  plate  requirements  of  the  Amercan 
Sheet  and  Tin  Plate  Company.  In  themselves 
these  pref erentials  as  shown  above  do  not  appear 
very  large,  and  it  is  only  by  considering  the 
large  quantities  of  plate  purchased  that  one 
realizes  the  full  significance  of  this  contract 
both  to  actual  and  possible  competitors  of  the 
Can  Company  and  to  the  Can  Company  itself. 
As  shown  by  Table  I,  in  the  period  from  1902 

TABLE  I 

Ratio  of  Tin-Plate  Rebates  to  the  Net  Profits  of  the 

American  Can  Company* 


Report  for  Year 
Ending 


March  31, 
March  31, 
March  31, 
December 
(9  mos.) 
December 
December 
December 
December 
December 
December 
December 


1903- •■ 
1904... 
1905... 
31. 190S 


31, 1906 
31.  1907 
31.  1908 
31,  1909 
31,  1910 

31.  1911 
31,  1912 


Total. 


Profits  (Net)t 


$  886,710.76 
2,394,510.11 
2,896,917.51 

2,311,417  01 
2,113,421.17 
2,652,392.32 
2,706,263.54 
2,756,151-20 
2,822,972.48 
2,916,339-27 
6,539.046-26 


$30,996,141-63 


Calendar 
Year 


1902 

1903 
1904 

1905 
1906 
1907 
1908 
1909 
1910 
1911 
191 2 


Rebates 


$  565,872.68 
766,775.45 
484,933-06 

588,923.31 
774,679  80 

809,318.73 
739,872.14 
827,234.23 
907,506.26 
1,053,220.80 
1,723,730.64 


$9,242,067 .  lO 


Percentage 

of  Rebate  to 

Net  Profits 


63.8 
32.0 
16.7 

25-4 
36.6 

30- S 
27  3 
30.0 
32.1 
36.1 
26.3 


29.6 


*  This  table  was  compiled  from  the  figures  of  Accountant  Charles  Denman. 
Tin  Plate  Rebates  Analysis,  "Secretary"  Account  General  Ledgers  (Petitioner's 
Exhibit  930,  record.  United  States  v.  American  Can  Company,  cit.  supra,  Vol. 
VIII,  pp.  3653  ff.)  and  the  Income  Accounts  of  the  American  Can  Company, 
1903-12  (Petitioner's  Exhibits  8-19,  ibid.,  Vol.  II,  pp.  491  flf.).  It  will  be  noted 
that  the  yearly  comparison  of  rebates  and  profits  is  not  strictly  accurate  owing 
to  the  fact  that  the  calendar  year  does  not,  during  the  first  part  of  the  period, 
coincide  with  the  fiscal  year.  The  writer  has  during  these  years  used  the  rebate 
figures  for  the  calendar  year  next  preceding  the  fiscal  year  ending  March  31  for 
which  the  income  figures  are  taken. 

t  After  depreciation  and  occasionally  other  deductions. 


.  I 


i 


126 


Unfair  Competition 


to  191 2,  the  preferentials  thus  accorded  to  the 
American  Can  Company  have  amounted  to  the 
large  sum  of  $9,242,067.10. 

Year  by  year  the  amount  of  the  tin  plate 
rebates  has  never  been  equivalent  to  less  than 
16  per  cent  of  the  net  profits  of  the  Can  Com- 
pany. In  each  of  six  years  of  this  period  it 
has  been  above  30  per  cent  and  in  one  year 
amounted  to  63 . 8  per  cent.  The  total  amount 
of  rebates,  $9,242,067.10,  is  equivalent  to  29 
per  cent  of  the  total  profits  of  $30,996,141 .63 
made  by  the  American  Can  Company  from 
1902  to  191 2.  That  such  an  arrangement  is 
unfair  requires  no  elucidation.  It  is  readily 
seen  how  preferences  of  such  a  nature  might 
result  in  the  utter  destruction  of  the  competi- 
tors of  an  organization. 

In  the  contracts  of  the  Electric  Lamp  Com- 
bination there  exists  the  same  double  unfairness 
as  that  just  described.  Since  practically  all 
the  manufactiu-ers  of  glass  bulbs,  tubing,  and 
bases  were  parties  to  these  contracts,  such 
arrangements  could  scarcely  be  regarded  as 
unfair  to  any  existing  manufacturer  of  such 
articles.  But  possible  as  well  as  actual  compe- 
tition must  be  considered,  and  according  to 
the  theory  set  forth  in  the  discussion  of  exclu- 
sive arrangements,  such  exclusive  purchasing 


Rebates  and  Preferential  Arrangements    127 

contracts  as  those  of  the  Electric  Lamp  Combi- 
nation with  the  manufacturers  of  bulbs,  tubing, 
and  bases  might  have  had  a  tendency  to  prevent 
new  organizations  from  embarking  in  the  manu- 
facture of  such  articles.  In  addition,  the  con- 
tracts were  clearly  unfair  to  competitors  of  the 
Electric  Lamp  Combination  since  the  former 
were  thus  placed  at  a  disadvantage  as  com- 
pared with  the  latter  in  the  purchase  of 
materials. 

B.  Rebates  given  by  transportation  com- 
panies are  sometimes  designed  to  maintain  ex- 
clusive arrangements  in  the  same  way  as  are 
rebates  given  by  manufacturing  companies. 
Perhaps  the  best  illustration  of  this  method  as 
used  by  transportation  companies  is  to  be 
found  in  the  deferred-rebate  contracts  of  the 
various  steamship  conferences.^    The  deferred 


"This  term  was  defined  by  the  "Royal  Commission"  as 
follows:  "A  Shipping  'Ring'  or  'Conference'  is  a  combination 
more  or  less  close  of  Shipping  Companies  formed  for  the  purpose 
of  regulating  or  restricting  competition  in  the  carrying  trade  on  a 
given  trade  route  or  routes."  Cf.  Report  of  the  Royal  Commission 
on  Shipping  Rings  with  Minutes  of  Evidence  and  Appendices^ 
Vol.  I,  Part  II,  p.  9.  Further  quotations  from  the  same  rep>ort 
indicate  more  clearly  the  nature  of  the  "Conference"  or 
"Ring."  "The  operations  of  a  Conference  are  confined  to  a 
particular  trade  route,  that  is  to  say,  the  engagements  which 
the  various  lines  enter  into  with  one  another  only  apply  to 
the  trade  within  certain  definite  areas  or  between  specific 
ports.    A  Steamship  Company  may  be  a  member  of  several 


P 


i, 

r 


f 


i. 


fllt^l 


128 


Unfair  Competition 


rebate  is  explained  in  the  Report  of  the  Royal 
Commission  on  Shipping  Rings  as  follows : 

The  Companies  issue  a  notice  or  circular  to  ship- 
pers informing  them  that  if  at  the  end  of  a  certain 
period  (usually  four  or  six  months)  they  have  not 
shipped  goods  by  any  vessels  other  than  those  dis- 
patched by  members  of  the  Conference  they  will  be 
credited  with  a  sum  equivalent  to  a  certain  part 
(usually  10  per  cent.)  of  the  aggregate  freights  paid  on 
their  shipments  during  that  period,  and  that  this  sum 
will  be  paid  over  to  them,  if  at  the  end  of  a  further 
period,  (usually  four  or  six  months),  they  have  con- 
tinued to  confine  their  shipments  to  vessels  belonging 
to  members  of  the  Conference.  The  sum  so  paid  is 
known  as  a  deferred  rebate.' 

As  applied  to  American  conditions  the 
deferred  rebate  has  been  used  at  one  time  or 
another  by  "conference"  lines  sailing  to  and/or 
from  American  ports  and  South  and  East 
Africa,   Argentina,   Brazil,    Central   America, 

Conferences,  but  its  engagements  in  one  are  independent  of  those 
in  any  other 

"The  main  objects  with  which  a  Conference  is  formed  are 
two.  It  is  formed  primarily  to  regulate  competition  between 
the  Companies  with  a  view  to  maintaining  regular  rates  of 
freight.  This  object  is  achieved  by  means  of  an  agreement  or 
understanding  between  the  Lines  that  they  will  charge  the  same 
rates  of  freight 

"The  second  object  is  to  concert  measures  to  meet  the 
competition  of  ship  owners  outside  the  Conference."— »i?e^or/  of 
the  Royal  Commission  on  Shipping  Rings,  etc.,  cit.  supra,  Vol.  I, 
Part  II,  p.  9. 

'  Ibid.,  p.  9. 


Rebates  and  Preferential  Arrangements    129 

Jamaica,  Porto  Rico,  Trinidad,  and  various 
ports  in  the  Far  East/ 

The  chief  unfairness  of  competition  imder 
railroad  rebates  is  that  it  unduly  favors  certain 
shippers  over  the  lines  of  a  railroad.  One 
organization  is  enabled  by  the  preferences 
aflForded  it  to  injure  and  destroy  others  perhaps 
equally  efficient  but  not  equally  favored.  This 
situation  apparently  does  not  result  from  the 
deferred-rebate  contracts  of  the  steamship 
conferences,  at  least  so  far  as  American  trade 
is  concerned.  As  a  report  submitted  by  the 
representatives  of  certain  steamship  lines  to  the 
Committee  on  the  Investigation  of  Shipping 
Combinations  phrased  it: 

The  system  of  deferred  rebates  to  loyal  shippers 
has  none  of  the  evils  of  the  secret  rebate  which  was 
formerly  employed  by  railroads.    Rebates  which  exist 

*  Proceedings  of  the  Committee  on  Merchant  Marine  and  Fish- 
eries in  the  Investigation  of  Shipping  Combinations,  pp.  1 18-19, 
148,  171-72,  174,  279,  282,  310,  323-25,  418,  429,  527,  879-80, 
906,  1209,  1222-23.  I^  most  cases  the  deferred  rebates  in  these 
trades  are  made  on  a  percentage  basis,  10  per  cent  being  the  most 
prevalent  rate.  In  some  instances,  however,  the  deferred  rebates 
are  specific,  a  definite  amount  being  paid  per  ton  of  goods  shipped. 
Sometimes  the  rebate  applies  only  to  certain  commodities.  In 
other  cases  it  appUes  to  aU  the  goods  shipped.  The  rebate  period 
is  usually  six  months  and  the  period  of  deferment  is  usually  six 
months  also.  W.  H.  S.  Stevens,  "The  Administration  and  En- 
forcement of  Steamship  Agreements  and  Conferences,"  The 
Annals,  LV  [September,  1914],  142-43. 


[r. 


I 


i'  < 


I30 


Unfair  Competition 


in  certain  trades  from  distant  countries  to  the  United 

States  are  open  and  public Any  merchant  may 

obtain  the  benefit  of  this  published  allowance  by  complying 
with  the  terms  of  the  circulars." 

If  these  statements  are  true,*  and  so  long  as 
they  continue  to  be  true,  the  deferred-rebate 
contracts  of  the  steamship  conferences  do  not 
work  an  unfairness  which  enables  one  shipper 
to  injure  and  destroy  a  competitor.^  This 
being  the  case,  it  is  necessary  to  seek  elsewhere 
to  discover  the  reason  for  regarding  deferred- 
rebate  contracts  as  unfair.  Suppose  a  steamer 
sails  with  a  cargo  from  port  A  to  port  B  expect- 
ing to  secure  at  B  shipments  of  commodities 
to  fill  its  hold  on  the  return  voyage.  Assume 
also  that  a  conference  agreement  with  deferred- 
rebate  contracts  is  in  force  in  the  trade  from 
B  to  A.  Obviously  the  steamer  in  question 
will  have  small  chance  of  obtaining  the  antici- 

*  Report  submitted  to  the  Committee  on  Merchant  Marine 
and  Fisheries  in  investigation  of  shipping  combinations,  by  the 
committee  appointed  by  the  representatives  of  the  steamship 
lines  maintaining  established  services  from  New  York  to  foreign 
countries,  including  Porto  Rico  and  the  Philippines,  cit.  supra, 
p.  1369.    Italics  are  the  writer's. 

*  The  evidence  seems  on  the  whole  to  indicate  that  they  are. 

*  It  might  be  asked  if  a  shipper  who  repeatedly  broke  his  con- 
tract by  shipping  over  other  than  conference  lines  would  always 
be  aUowed  on  his  appUcation  to  ship  under  the  terms  of  the 
deferred-rebate  contract.  If  not,  he  would  obviously  be  dis- 
criminated against  as  compared  with  other  companies. 


Rebates  and  Preferential  Arrangements    131 

pated  cargo.  If  a  merchant  ships  by  a  steamer 
which  is  not  a  member  of  the  conference,  he 
loses  his  rebates,  not  only  for  the  rebate  period 
in  which  he  makes  the  shipment,  but  also  those 
for  the  prior  rebate  period,  payment  of  which 
has  been  deferred.  No  matter  how  great  a 
reduction  in  rates  is  offered  by  our  hypothetical 
steamer,  it,  as  a  rule,  will  still  be  insufficient 
to  secure  cargo.  The  reason  is  evident.  The 
amount  which  the  shipper  would  gain  by  thus 
violating  his  contract  would  seldom,  if  ever, 
even  approach  the  total  sum  of  the  rebates 
which  he  receives  by  complying  therewith. 

Under  conditions  of  true  economic  compe- 
tition it  is  clear  that  the  lowest  bidder  would 
secure  the  freight.  The  deferred  rebate  pre- 
vents this  result.  Consequently  it  must  be 
regarded  as  unfair  competition.  Its  inevitable 
tendency  as  weU  as  its  acknowledged  purpose 
and  intent  is  to  destroy  all  competition  in  the 
carrying  trade  and  place  it  in  the  hands  of  the 
parties  to  the  conference  agreement.^ 

'While  believing  that  deferred-rebate  contracts  must  be 
regarded  as  imfair  competition,  the  writer  is  far  from  contending 
that  competition  in  the  transoceanic  steamship  trade  is  either 
necessary  or  desirable.  A  large  part  of  this  traffic  may  be  not 
unfairly  described  as  monopolistic  in  character.  A  considerable 
number  of  commodities  require  a  certain  regularity  and  rapidity 
in  transportation  service.  The  amount  of  this  type  of  freight 
is  frequently  not  large  enough  to  afford  a  profit  to  more  than 


t 


132 


Unfair  Competition 


,  1 


^^n^^ 


m 


Somewhat  similar  to  the  deferred-rebate 
contracts  of  the  various  steamship  conferences 
were  the  rebate  arrangements  formerly  em- 
ployed upon  the  Great  Lakes.  As  early  as  the 
year  1900  the  Great  Lakes  Towing  Company 
inaugurated  a  system  of  exclusive  arrange- 
ments whereby  large  discounts  from  the  regular 
tariff  rates  were  granted  by  the  Towing  Com- 
pany on  the  condition  that  the  vessel  owners 
would  employ  through  the  entire  season  the 
company's  tug  and  wrecking  service  at  all  ports 
covered  by  its  tariffs  in  so  far  as  the  vessel 

a  relatively  small  number  of  vessels.  If  unlimited  competition 
is  permitted,  the  tendency  would  probably  be  for  the  necessary 
regularity  and  rapidity  to  disappear.  Lines  which  had  main- 
tained these  conditions  would  be  compelled  to  withdraw,  since 
it  would  no  longer  be  profitable  to  have  regular  sailing  dates  nor 
to  devote  to  this  service  steamers  sufficiently  large  and  powerful 
to  supply  rapid  transportation. 

Important  as  these  considerations  are,  they  cannot  alter  the 
conclusion  that  under  present  conditions  deferred-rebate  con- 
tracts constitute  unfair  competition.  Yet  they  are  significant, 
since  they  show  that  there  are  fields  in  which  the  principle  of 
free  competition  is  in  aU  probability  economically  unsound. 
Possibly,  indeed  probably,  there  are  other  lines  of  business 
besides  that  of  the  transoceanic  steamship  traffic  to  which  this 
statement  would  apply  with  equal  force.  It  certainly  seems 
desirable  that  some  form  of  regulation  should  be  adopted  which 
will  recognize  the  necessities  of  ocean  steamship  traffic.  A  line 
maintaining  a  regular  and  rapid  service  between  certain  ports 
would  appear  entitled  to  charge  a  somewhat  higher  rate  for  it. 
Nor  does  it  seem  just  that  its  traffic  should  be  at  the  mercy  of 
any  chance  tramp  steamer  that  may  drop  into  port  to  secure  a 
cargo.    Yet  the  difficulty  of  adequate  regulation  is  great.    The 


J 


Rebates  and  Preferential  Arrangements    133 

owners  had  occasion  for  such  service.  In  1910 
owners  were  allowed  a  flat  discount  of  20  per 
cent.  At  no  time  was  the  discount  less  than 
20  per  cent,  and  in  succeeding  years  it  varied 
with  the  class  of  service.  No  discounts  were 
given  except  under  exclusive  contracts,  and  the 
vessel  owner  was,  in  addition,  guaranteed  that 
his  contract  rates  taken  together  should  not 
exceed  the  sum  of  the  cut  rates  made  to  meet 
competition.' 

It    is    now  quite  generally  the  view  that 
railroad  rebating  is  an  unfair  practice.      The 

trade  is  between  different  countries.  Many  objections,  therefore, 
exist  to  a  form  of  regulation  similar  to  that  afforded  by  the 
Interstate  Commerce  Commission.  The  ideal  solution  would 
probably  be  a  commission  composed  of  representatives  of  the 
great  carrying  nations.  This  body  would  designate  the  confer- 
ence areas,  determine  the  conditions  under  which  steamship 
lines  could  become  members,  and  prescribe  the  circimistances 
under  which  "tramps"  and  similar  vessels  might  compete  with 
the  conference  lines  for  cargo.  The  system  in  vogue  at  present  is 
designed  to  and  does  shut  out  comj)etition  within  the  conference 
area.  However  desirable  rapid  and  regular  service  may  be  from 
the  standpoint  of  the  shipper,  however  necessary  to  maintain 
these  conditions  deferred-rebate  contracts  may  be,  they  are  at 
present  unfair  to  competing  steamers  and  lines.  Under  no  cir- 
cumstances except,  perhaps,  the  strictest  government  regulation 
and  supervision  should  they  be  permitted.  Since  this  was 
written  an  act  of  Congress  has  created  a  Shipping  Board.  This 
measure  has  declared  unlawful  deferred  rebates,  the  use  of 
fighting  ships,  and  various  kinds  of  discriminations.  An  Act  to 
establish  a  United  States  Shipping  Board,  etc.  Approved 
Sept.  7,  1916. 

« 208  Fed.  738-39. 


I 


i 


"  •    J 


134 


Unfair  Competition 


basis  of  this  opinion  is  to  be  found  in  the  fact 
that  through  such  rebates  certain  shippers  are 
benefited  and  placed  at  an  advantage  as 
compared  with  other  shippers  over  the  same 
railroad  who  should  logically  be  entitled  to 
receive  the  same  rates  for  equal  shipments 
of  like  commodities.  This  fact  is  so  gener- 
ally recognized  that  the  subject  of  railroad 
discriminations  requires  little  examination  or 
discussion.'  A  single  illustration  of  such 
methods  will  therefore  suj6&ce — the  transporta- 
tion of  oil.  In  its  study  of  this  subject  the 
Bureau  of  Corporations  based  its  investigation 
principally  upon  the  tariffs  and  records  of  the 
railroads  themselves.  The  Report  of  the  Bureau 
stated  that  the  "general  result  of  the  investi- 
gation has  been  to  disclose  the  existence  of 

'  The  question  may  perhaps  be  raised  as  to  why  the  writer 
includes  railway  rebates  in  a  discussion  of  unfair  competition, 
since  the  persons  who  are  injured  by  the  said  rebates  are  not  in 
competition  with  the  railroad  company.  In  the  writer's  esti- 
mation the  answer  to  this  question  is  that  under  this  situation 
the  action  of  the  railroad  in  giving  the  rebate  becomes  an  integral 
part  of  the  competition  of  the  organization  to  which  the  said 
rebate  is  given,  and  as  such  the  entire  transaction  should  be 
regarded  as  an  act  of  unfair  competition  toward  other  shippers 
who  are  not  benefited  thereby.  This  theory  may  appear  to  the 
reader  to  be  rather  far-fetched.  At  the  same  time  the  writer 
considers  that  the  situation  is  such  that  to  all  intents  and  pur- 
poses the  act  of  the  railroad  company  in  this  connection  is  a  com- 
petitive act,  although  the  railroad,  of  course,  is  not  in  competition 
with  the  shippers. 


Rebates  and  Preferential  Arrangements    135 

numerous  and  flagrant  discriminations  by  the 
railroads.''  The  Bureau  further  found  that 
discriminations  in  the  transportation  of  oil 
embraced  a  variety  of  forms,  the  "more  impor- 
tant of  which,"  so  the  Summary  states,  "may  be 
classed  under  the  following  heads: 

"i.  Secret  and  semisecret  rates. 

"2.  Discriminations  in  the  open  arrangement  of 

rates. 
"3.  Discriminations  in  the  classification  and  rules 

of  shipment. 
"4.  Discriminations  in  treatment  of  private  tank 


cars. 


"X 


It  is  noteworthy  that  a  nimaber  of  secret 
rates  and  open  discriminations  disclosed  by  the 
investigation  of  the  Bureau  of  Corporations 
were  abolished  by  the  railroads  shortly  after 
their  discovery.' 

Industrial  "tap  lines''  also  furnish  oppor- 
timities  for  disguised  rebates.  The  Com 
Products  Refining  Company  owns  switching 
railroads  which  connect  its  four  principal 
plants  at  Pekin,  Granite  City,  Argo,  and  Daven- 
port with  the  trunk  lines.  Through  rates  were 
made  by  the  switching  and  trunk  lines  in  con- 
junction with  one  another.    The  government 

"  Report  of  the  Commissioner  of  Corporations  on  the  Transpor- 
tation of  Petroleum^  p.  i. 

» Ibid.j  Letter  of  Submittal,  p.  xxv. 


I  f 


i>fl 


t'l 


W 


136 


I 


m 


m\ 


Unfair  Competition 


asserts  that  prior  to  March,  1910,  the  share 
of  these  rates  which  was  given  to  the  switching 
lines  was  excessive  as  compared  with  the  serv- 
ice actually  performed.  This  practice  was 
equivalent  to  a  rebate  from  the  railroad  com- 
pany for  a  part  of  the  freight  rates.  The 
practice  was  finally  forbidden  by  the  rulings 
of  the  Interstate  Commerce  Commission.' 

The  situation  just  outlined  does  not  differ 
materially  from  those  cases  where  "tap-line" 
services — ^the  handling  of  products  from  the 
place  of  production  to  the  main  line  of  the  rail- 
road— ^are  furnished  free  of  charge.  In  an 
opinion  on  this  latter  point  the  Interstate  Com- 
merce Commission  expresses  the  following  view: 

What  we  decide  ....  is  that  these  practices  are 
unlawful  in  themselves  because  they  are  rebates,  in 
fact  and  in  effect,  and  also  give  undue  and  unreason- 
able preferences  and  advantages  to  the  industries  so 
favored  and  work  undue  and  unreasonable  prejudice 
and  disadvantage  to  shippers  in  the  same  business  who 
do  not  receive  any  such  allowances  or  rebates  and 
who  do  not  receive  the  benefit  of  any  such  services. 

In  1900  the  owners  of  all  rail  elevators  in 
Buffalo,  with  the  exception  of  the  Kellogg 
elevator,    formed     a    joint-stock    association 

« Petition,  UnUed  States  v.  Com  Products  Refining  Company, 
cit.  supra,  p.  28. 

'  New  York  Times,  January  28,  19 14. 


I 


it 


Rebates  and  Preferential  Arrangements    137 


known  as  the  Western  Elevator  Association. 
This  association  entered  into  contracts  with  the 
railroad  companies  whereby  the  latter  agreed 
to  pay  the  former  one-half  cent  per  bushel  for 
all  grain  transported  by  them  regardless  of 
whether  such  grain  was  handled  by  the  ele- 
vators of  the  association  or  by  the  Kellogg 
elevator.  To  carry  out  this  arrangement  the 
railroads  added  one-half  cent  per  bushel  as 
elevator  charges  to  all  grain  carried  by  them 
and  delivered  the  amount  accruing  to  the  asso- 
ciation. In  case  the  owners  of  the  Kellogg 
elevator  insisted  upon  receiving  one-half  cent 
per  bushel  for  elevating  grain,  that  grain  was 
made  to  pay  an  elevator  charge  of  one  cent 
a  bushel.  The  result  of  this  situation  was,  of 
course,  to  deter  shippers  of  grain  from  utilizing 
the  Kellogg  elevators.^ 

It  requires  but  little  demonstration  to  show 
that  preferential  arrangements  and  rebates 
used  by  transportation  companies  for  other 
purposes  than  to  secure  exclusive  arrangements 
are  imfair.  A  transportation  rate  given  to 
one  concern  lower  than  to  other  and  competing 
concerns  enables  the  former  to  diminish  its 
prices   by    the    difference   between   the    two 


I 


.. ' 


*  Kellogg  V.  Sowerby,  93  N. Y.  App.  Div.  Sup.  Ct.  1 24.    Kellogg 
&  Company  sued  and  obtained  damages. 


fli.^1 


f 


i  I 


i! 


!i'i 


I 


n 


i 


I,  f 


ii 


14 


138 


Unfair  Competition 


charges,  in  the  same  way  as  when  materials 
which  enter  into  the  productive  process  are 
sold  to  one  organization  at  lower  prices  than 
to  its  competitors.  In  both  cases  that  pro- 
ductive efficiency  which  may  have  enabled 
marginal  concerns  to  compete  is  rendered 
ineffectual;  and  such  organizations,  if  any 
there  be,  will  be  compelled  to  discontinue  busi- 
ness. It  is  also  true  that  not  even  the  most 
highly  efficient  competing  organizations  will  be 
able  to  maintain  themselves  if  the  differential 
between  either  the  two  prices  for  transportation 
or  the  two  prices  for  materials  becomes  suffi- 
ciently great.  At  the  same  time  the  beneficiary 
of  rebates  and  preferential  contracts  may  be 
notoriously  inefficient — so  inefficient  that  it 
could  not  exist  for  a  moment  under  economi- 
cally fair  competition.  Yet  in  the  face  of  the 
unfair  conditions  described  little  or  no  competi- 
tion whatsoever  may  be  able  to  survive. 


CHAPTER  VIII 

ENGROSSING  MACfflNERY  OR  GOODS  USED 
IN  THE  MANUFACTURING  PROCESS 

In  the  United  States,  attempts  to  acquire 
control  of  the  machinery  necessary  to  the 
manufacture  of  goods  apparently  date  from 
nearly  three  decades  ago.  On  or  about  April 
30,  1887,  the  Standard  Envelope  Company" 
made  a  contract  with  Lester  &  Wasley,  of  Nor- 
wich, Connecticut,  to  purchase  all  the  envelope 
machines  which  that  firm  might  make  or  sell 
during  the  five  succeeding  years.  At  the  same 
time  Lester  &  Wasley  on  their  part  agreed  not 
to  furnish  more  than  twenty-four  machines  in 
any  one  year.*  Whether  or  not  this  firm  was 
the  sole  manufacturer  of  envelope  machinery 
does  not  appear. 

'The  Standard  Envelope  Company  was  a  corporation  of 
Massachusetts  organized  by,  and  used  as  a  clearing-house  for, 
a  combination  of  several  of  the  largest  envelope  manufacturers 
of  the  United  States.  For  a  brief  account  of  the  organization 
and  operation  of  this  combination,  cf.  an  article  by  the  writer 
in  the  American  Economic  Review,  III  (September,  1913),  p.  561. 

« Report  of  the  Committee  on  General  Laws,  on  the  investi- 
gation relative  to  trusts,  New  York  Senate  Document  No.  50, 

1888,  p.  469- 

139 


V  ' 


II' 

if 


.'J 'I* 


ill! 


i; 


\\i 


140 


Unfair  Competition 


The  thirteenth  annual  report  of  the  Com- 
missioner of  Labor  indicated  the  very  remark- 
able advantages  obtained  by  manufacturmg 
cigarettes  by  machinery  instead  of  by  hand. 
The  labor  cost  of  a  certain  cigarette  made  by 
hand  in  1876  was  96.5  cents  per  thousand, 
while  the  same  cigarette  made  by  machinery 
in    1895    cost   only  8.1    cents   per  thousand 
for  labor.     Similar  savings  in  labor  cost  were 
effected     on     other     classes     of     cigarettes. 
Although   the   Hook   cigarette   machine   was 
invented  in  1872,  it  was  not  until  about  ten 
years  later  that  the  use  of  cigarette  machines 
became  practically  successful.    By  1884,  how- 
ever, the  daily  output  of  a  smgle  Bonsack 
machine  was  120,000  cigarettes,  or  about  fifty 
times  as  many  as  a  rapid  cigarette-roUer  could 
produce  by  hand. 

^  In  1890,  when  fully  90  per  cent  of  the  total 
cigarette  production  of  the  United  States  was 
in  the  hands  of  five  concerns,'  the  best  machines 
in  use  were  the  Bonsack  and  the  Allison.  As 
only  a  limited  number  of  organizations  besides 
these  five  were  using  those  machines,  there  is 
some  ground  for  the  view  that  the  possibihty 

'  W.  Duke  Sons  &  Company,  Men  &  Ginter,  Goodwin  & 
Company,  Kinney  Tobacco  Company,  and  WilUam  S.  KimbaU 
&  Company. 


Engrossing  Machinery 


141 


of  securing  an  exclusive  control  over  cigarette 
machinery  was  one  of  the  reasons  leading  to  the 
organization  of  the  American  Tobacco  Com- 
pany.' This  combination  acquired,  with  the 
Kinney  and  Kimball  branches  both  parties  to 
its  organization,  the  Allison  cigarette  machines 
which  these  branches  had  been  using.  One 
of  the  members  of  the  Kinney  Company  had 
owned  the  patents  for  this  machine,  and  the 
Allison  Machine  Company  had  been  incorpo- 
rated in  New  Jersey  in  1889  by  the  same  men 
who  afterward  organized  the  American  Tobacco 
Company.  Charles  G.  Emery,  the  first  treas- 
urer of  the  American,  was  also  the  inventor  of 
the  Emery  cigarette  machine  which  Goodwin 
&  Company  had  used.  At  its  inception,  there- 
fore, the  American  acquired  control  of  these 
two  machines.  Soon  after,  it  also  made  a  con- 
tract with  the  Bonsack  Machine  Company  for 
the  privilege  of  the  exclusive  use  and  control 
in  the  United  States  of  the  Bonsack  machine. 
The  American  had  the  right  to  cancel  the  con- 
tract if  the  Bonsack  Company  failed  to  secure 
for  it  the  exclusive  use  of  this  type  of  machine 
prior  to  March  i,  1891.  It  might  also  exercise 
the   same   right  whenever   as   many   as   one 

'  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco 
Industry,  Part  I,  pp.  63-64. 


I 


li 


\    ! 


>Pl' 


142 


Unfair  Competition 


hundred  million  cigarettes  were  manufactured 
in  this  coimtry  within  a  period  of  twelve 
consecutive  months  by  factories  or  concerns 
outside  the  combination,  or  on  machines  not 
controlled  by  the  Bonsack  Company.  In 
conformity  with  this  agreement  the  Bonsack 
Machine  Company  terminated  its  contracts  in 
force  with  outside  manufacturers,  and  the 
American  continued  the  use  of  the  machine 
under  this  contract  imtil  the  year  1895.* 

Still  another  early  example  of  this  method 
of  competition  may  be  given.  At  the  time  of 
the  organization  of  the  Continental  Wall  Paper 
Company  in  the  later  nineties  John  Waldron 
&  Son  and  the  Kaukauna  Machine  Company 
were  the  only  manufacturers  in  the  United 
States  producing  wall-paper  manufacturing 
machines.  Each  concern  had  one  factory 
where  it  carried  on  its  business,  the  former  at 
New  Bnmswick,  New  Jersey,  the  latter  at 
Kaukauna,  Wisconsin.  These  two  machinery 
manufacturers  entered  into  contracts  with  the 
Continental    Wall    Paper   Company  whereby 

'  Adverse  judicial  decision  lost  the  Bonsack  Company  the 
exclusive  right  to  use  the  most  important  parts  of  its  machine. 
On  January  2,  1896,  therefore,  the  American  ceased  to  pay 
royalties  and  to  have  the  exclusive  right  to  the  use  of  the  Bon- 
sack machine  {Report  of  the  Commissioner  of  Corporations  on  the 
Tobacco  Industry,  Part  I,  pp.  66-67). 


Engrossing  Machinery 


143 


they  agreed  that  they  would  sell  wall-paper 
manufacturing  machines  to  the  Continental 
Company  only.^ 

More  recent  instances  of  the  use  of  the 
method  under  discussion  are  numerous. 
According  to  the  government,  the  only  com- 
panies in  the  United  States  which  formerly 
manufactured  suitable  and  efficient  electric- 
lamp-making  machinery  were  the  York  Electric 
and  Machine  Company  and  Elmer  F.  Dwyer, 
the  latter  trading  as  the  Dwyer  Machine  Com- 
pany. By  the  terms  of  certain  agreements 
the  Electric  Lamp  Combination,  through  the 
National  Electric  Lamp  Company,  acquired 
all  the  patents,  applications,  and  machinery 
on  hand  which  these  organizations  possessed. 
In  addition,  the  York  and  Dwyer  companies 
agreed  to  refrain  from  producing  lamp-making 
machinery,  except  for  sale  to  the  members  of 
the  combination.^ 

The  American  Can  Company,  at  or  about 
the  time  of  its  formation,  acquired  control  of 
the  businesses  or  the  output  of  several  con- 
cerns engaged  in  the  manufacture  of  automatic 
body-makers,  these  being  the  most  important 

» Continental  Wall  Paper  Company  v.  Lems  Voight  6*  Sons 
Company,  148  Fed.  939,  cf.  p.  952. 

'Petition,  United  States  v.  General  Electric  Company,  cit. 
supra,  pp.  34-35- 


'f; 


fl 


144 


Unfair  Competition 


machines  in  the  manufacture  of  packers'  cans. 
It  also  acquired  at  the  same  time  control  of 
most  of  the  leading  concerns  engaged  in  manu- 
facturing automatic  side-seamers,  headers, 
floaters,  and  end-seamers,  all  of  these  likewise 
being  important  machines.  Among  the  lead- 
ing can  machinery  plants  and  businesses 
acquired  by  the  American  Can  Company  by 
the  purchase  of  their  assets  were  Crosby  & 
Company,  Norton  Brothers,  and  the  Sprague 
Canning  Machinery  Company  of  Chicago,  the 
Robbins  Press  Works  of  San  Francisco,  and 
the  Sleeper  Machine  Company.  By  contract 
it  also  acquired  control  of  the  output  of  the 
E.  W.  Bliss  Company  of  Brooklyn,  the  Adri- 
ance  Machine  Company,  and  the  Ferracute 
Machine  Company.  In  addition,  it  secured  a 
considerable  proportion  of  all  of  the  commer- 
cially valuable  patents  for  the  manufacture  of 
ordinary  can  machinery. 

By  the  terms  of  the  contract  with  the  E.  W. 
Bliss  Company  the  American  Can  Company 
agreed  to  pay  $100,000  a  year  to  the  BHss 
Company  for  a  period  of  six  years.  The  Bliss 
Company  agreed  "that  during  and  through- 
out the  aforesaid  term  and  period  hereof 
it  will  not  devise,  construct,  manufacture 
or    deUver   any   automatic   can-making   tools 


IM 


Engrossing  Machinery 


145 


or  machinery  except  for  and  to  the  first 
party,  except  for  export  elsewhere  than  to 
Canada."' 

Diu-ing  the  six  years  while  this  contract 
was  in  force  only  $117,954. 76  worth  of  machin- 
ery was  deHvered  to  the  American  Can  Com- 
pany, so  that  from  a  practical  standpoint 
it  appears  that  the  American  Can  Company 
paid  close  to  half  a  million  dollars  in  order 
to  prevent  the  Bliss  Company  from  supply- 
ing independents  with  automatic  machinery. 
Similarly,  the  six-year  contract  with  the  Ferra- 
cute Machine  Company,  running  from  1901 
to  1907,  provided  that  the  American  Can 
Company  should  pay  to  that  organization 
$10,000  a  year,  although  the  Can  Company's 
purchases  did  not  exceed  $5,000"  during  this 
entire  period. 

The  ahnost  complete  control  over  auto- 
matic can-making  machinery  which  was  ac- 
quired by  the  American  Can  Company  at 
the  time  of  its  formation  was  not  of  extended 
duration.  Within  a  comparatively  few  years 
a  number  of  concerns  equipped  themselves  to 
manufacture  machinery  of  this  character.    The 

» Petitioner's  Exhibit  923,  record,  United  States  v.  American 
Can  Company,  cit.  supra,  Vol.  VII,  p.  3532. 

■  Ibid.,  record,  Vol.  VII,  pp.  335o^Sii  and  VHI,  p.  3629. 


/ 1 


11^ 


i» 


IK 


>  ^^" 


146 


Unfair  Competition 


Max  Ams  Machine  Company,  for  example, 
became  the  owner  of  patents  for  machinery  for 
making  and  seaHng  open-top  or  sanitary  cans, 
as  they  are  sometimes  called.  Originally  the 
open-top  can  had  been  of  small  importance 
when  compared  with  the  hole-top  can,  but  the 
competition  of  the  former  type  of  can  soon 
became  substantial,  and  as  a  result  the  Ameri- 
can acquired  the  Sanitary  Can  Company,  the 
largest  concern  making  and  marketing  such 
cans.  In  addition,  the  American  and  Sanitary 
companies  then  entered  into  a  contract  with 
the  Max  Ams  Company,  the  principal  manu- 
facturer of  open-top  can  machinery,  whereby 
the  latter  organization  granted  an  exclusive 
license  to  the  American  and  Sanitary  com- 
panies to  use  any  can-making  machinery 
manufactured  under  any  patent  owned  by  it 
or  thereafter  issued  to  it.  The  Max  Ams 
Company  also  boxmd  itself  for  a  period  of  five 
years  not  to  sell  any  such  machinery  to  any 
person  in  the  United  States,  Canada,  or  Hawaii 
except  one  concern  in  Maine  and  certain  of  its 
old  customers — ^packers  who  required  cans  for 
their  own  use.  Upon  their  part  the  American 
and  Sanitary  companies  agreed  to  purchase 
annually  from  the  Max  Ams  Company  a  cer- 
tain specified  amount  of  its  patented  machines 


Engrossing  Machinery 


147 


for  making  solderless  or  the  so-called  "  sanitary  " 
cans.* 

Another  alleged  instance  of  this  type  of 
unfair  competition  came  to  light  in  January, 
1914,  in  a  suit  brought  by  the  Graham  Wood 
Company  of  Brooklyn  against  the  Standard 
Wood  Company  and  the  Greene  Manufactur- 
ing Company.  The  last-named  organization 
manufactures  machines  known  as  "presses," 
which  are  useful  and  to  a  considerable  extent 
necessary  in  the  production  of  bundled  kindling 
wood.  It  appears  that  the  Standard  Wood 
Company  entered  into  a  contract  with  the 
Greene  Company  whereby  it  agreed  to  pay 
the  latter  $5,000  annually,  in  return  for  which 
consideration  the  Greene  Company  constituted 
the  Standard  Company  its  exclusive  sales  agent, 
and  further  agreed  that  it  would  not  sell  any 
press  without  the  consent  of  the  latter.  The 
Graham  Company,  unable  to  secure  presses  to 
conduct  its  business,  brought  a  suit  for  damages 
against  both  the  Greene  and  the  Standard 
companies  on  account  of  the  injury  suffered  by 
its  business  because  of  the  refusal  of  these 
two  organizations  to  supply  it  with  machinery.^ 

» Petitioner's  Exhibit  26,  record,  United  States  v.  American 
Can  Company,  cit.  supra,  Vol.  I,  pp.  230  ff. 

» Original  petition,  United  States  v.  Standard  Wood  Company, 
U.S.C.C.  for  the  Southern  District  of  New  York,  p.  14;  Graham 


llM 


148 


Unfair  Competition 


)i 


ifiii 

m 


Somewhat  different  from  the  cases  just 
described  are  those  in  which  articles  or  mate- 
rials entering  uito  the  manufacturing  process 
are  engrossed  instead  of  the  machinery  of 
manufacture. 

In  the  early  days  of  the  positive  process  in 
photography  the  method  used  was  to  print  on 
a  paper  in  which  albumin  carried  the  sensitive 
salts,  and  it  was  customary  for  each  photog- 
rapher to  albuminize  and  sensitize  his  own 
paper.  Tests  and  experiments  with  the  albu- 
minizing process  for  some  three  or  four  decades 
prior  to  1899  had  shown  that  two  European 
concerns  made  the  raw  paper  which  was  the 
most  satisfactory,  and  this  paper  had  become 
the  standard  throughout  the  world  for  photo- 
graphic purposes.  The  necessary  requirement 
of  such  a  paper  was  that  it  should  be  abso- 
lutely free  from  metallic  substances,  because 
metal,  such  as  iron,  has  a  tendency  to  re- 
duce the  silver  and  thus  to  cause  the  same 
chemical  change  as  would  be  effected  by  the 
action  of  light  plus  the  developer.  As  a  result 
one  would  get  a  spot  for  every  place  where 
the  silver  salt  had  been  reduced   to  silver. 

Wood  Company  v.  Standard  Wood  Company  and  the  Greene  Manu- 
facturing Company,  Supreme  Court,  New  York,  typewritten  copy 
of  motion  for  judgment,  pp.  1-2.  This  is  a  further  illustration 
of  the  results  of  the  unlimited  right  of  selecting  customers. 


I     ; 


Engrossing  Machinery 


149 


Two  places  in  Europe  had  water  free  from 
metaUic  substances — ^Rives,  France,  and  Mal- 
medy,  Prussia — ^and  it  was  Blanchet  Freres  & 
Kleber  of  the  former  place,  and  Steinbach  & 
Company  of  the  latter,  who  produced  the 
standard  paper  for  many  years.  In  fact, 
it  was  practically  axiomatic  that  no  papers 
suitable  for  photographic  purposes  could  be 
made  elsewhere,  and  all  the  world  used  their 
products.* 

In  the  spring  of  1898  Blanchet  Freres 
&  Kleber  and  Steinbach  &  Company  com- 
bined to  form  the  General  Paper  Company  of 
Brussels,  and  immediately  raised  the  price  of 
raw  paper.  Negotiations  were  shortly  opened 
with  the  combination  by  George  Eastman, 
and,  as  a  result,  a  contract  was  entered  into 
between  the  General  Paper  Company  and  the 
Eastman  interests,  making  the  latter  sole  agents 
for  the  papers  of  the  former  for  use  in  the  gela- 
tine printing-out  process  in  the  United  States, 
Canada,  and  Mexico.* 

>  Brief  for  the  United  States,  UnUed  States  v.  Eastman  Kodak 
Company,  cit.  supra,  pp.  38-39. 

» "The  General  Paper  Co.  gives  to  the  said  Kodak  Co.  the 
exclusive  right  to  purchase  and  the  exclusive  sales  agency  for 
the  United  States  of  America,  Canada,  and  Mexico  of  the  papers 
described 

"It  will  not  sell  any  of  the  said  plain  or  baryta  coated  papers 
to  anyone  else  in  said  territory,  and  will  not  sell  any  paper 


i 


.4 


I50 


Unfair  Competition 


Engrossing  Machinery 


151 


lilii  i 


II 


11 

III 

iinii 


DaUey,  an  independent  manufacturer,  testi- 
fied before  the  Industrial  Commission  as  fol- 
lows regarding  the  results  of  this  arrange- 
ment: 

Some  of  the  American  manufacturers  had  contracts 
with  the  manufacturers  in  Germany,  so  they  were  pro- 
tected for  a  certain  length  of  time;  and  these  which 
were  thus  protected  the  General  Aristo  Company  pur- 
chased as  far  as  possible But  I  had  no  con- 
tract at  that  time,  and  consequently  I  was  shut  off 
from  a  supply  of  raw  paper  almost  completely,  although 
I  was  able  to  get  some  of  certain  kinds.' 

In  view  of  this  contract  it  is  easily  under- 
standable that  the  Eastman  interests  sold 
approximately  98  per  cent  of  the  photographic 
paper  in  the  United  States  during  the  year  1901, 
and  that  as  late  as  1904,  after  independent 

elsewhere  to  be  baryta  coated  to  go  into  such  territory  to  be 
used  for  the  above  purpose.     [With  one  exception.]  .... 

"It  will  use  every  practicable  means  of  preventing  any  of  its 
plain  or  coated  papers  being  imported  into  said  territory  to  be 
used  for  said  purposes  by,  among  other  things,  compelling  its 
customers  to  sign  an  agreement  that  they  will  not  sell  the  paper 
unsensitized  to  anybody  in  said  territory;  and  the  General  Paper 
Co.  further  agrees  that  it  wiU  not  supply  its  papers  to  customers 
who  do  not  keep  this  agreement." — Government  Exhibit  141, 
General  Paper  Co.,  Steinbach  &  Co.,  Blanchet  Freres  &  Kleber, 
and  Eastman  Kodak  Company,  terms  of  sale,  October  20,  1898, 
re  raw  paper,  record,  United  States  v.  Eastman  Kodak  Company ^ 
cit.  supra,  Vol.  V,  pp.  2047-48. 

» W.  B.  Dailey,  Report  of  the  Industrial  Commission^  etc.,  cit^ 
supra,  Vol.  XIII,  p.  183. 


foreign  raw  paper  was  attaining  some  measure 
of  success,   Eastman  stated  that  they  were 
doing  "at  least  75  per  cent  of  the  photographic 
paper  trade  and  hardly  as  large  as  90  per  cent."^ 
The  government  has  charged  the  Aluminum 
Company  of  America  with  endeavoring  to  ob- 
tain such  a  control  of  the  bauxite  properties 
of  the  United  States  as  woidd  prevent  anyone 
but  itself  from  producing  metal  aluminum.' 
Prior  to  1905  this  company  possessed  valuable 
bauxite  properties,  yet  it  did  not  control  even 
50  per  cent  of  the  total  bauxite  supply  of  the 
United    States.    In    that   year,    however,    it 
acquired    the   capital   stock   of   the    General 
Bauxite  Company  through  the  General  Chemi- 
cal Company.    As  part  consideration  for  this 
purchase    the    General    Chemical    Company 
agreed  that  it  would  not  use  bauxite  sold  to  it 
by  the  General  Bauxite  Company  for  conversion 
into  metal  aluminum ^^  nor  sell  it  to  any  organiza- 
tion which  used  it  for  su^h  a  purpose,  and  fur- 
ther, that  upon  proof  of  any  such  use  it  would 

« Brief  for  the  United  States,  United  States  v.  Eastman  Kodak 
Company,  cit.  supra,  p.  6i. 

*  Metal  aluminum  is  manufactured  from  bauxite. 

» Sections  Fourth  and  Eighth  of  the  contract  between  the 

General  Chemical  Company  and  the  General  Bauxite  Company, 

quoted  in  petition  in  equity.  United  States  v.  Aluminum  Company 

f  America,  U.S.D.C.  for  the  Western  District  of  Pennsylvania, 

p.  17. 


ii 


IS2 


Unfair  Competition 


not  make  any  further  sales  or  deliveries  to  the 
purchaser  thereof. 

In  1909  a  contract  was  made  with  the  Norton 
Chemical  Company  for  the  purchase  (with  one 
reservation)  of  the  bauxite  properties  of  the 
RepubHc  Mining  and  Manufacturing  Company, 
whose  capital  stock  was  owned  by  the  Norton 
Company.  Although  the  Norton  Company 
might  mine  and  use  bauxite  from  a  certain 
forty-acre  tract  of  bauxite  land,  and  might  also 
sell  it,  it  could  do  so  only  in  case  the  use  was  for 
some  other  purpose  than  for  the  manufacture  of 
aluminum,^ 

The  writer  submits  that  arrangements  of 
the  character  cited  are  instances  of  unfair 
competition.*  They  are  clearly  contrary  to 
the  principle  of  a  competition  of  efficiency.    In 


b 


*  Sections  Tenth  and  Eighteenth  of  Norton  Chemical  Com- 
pany contract,  quoted  in  United  States  v.  Aluminum  Company 
of  America y  cit.  supra,  p.  19.  In  considering  these  contracts  made 
by  the  Aluminum  Company  of  America,  it  should  be  borne  in 
mind  that  this  organization  is  alleged  to  control  nearly  one-half 
the  stock  of  the  Aluminum  Castings  Company,  37  per  cent  of  the 
stock  of  the  Aluminum  Goods  Manufacturing  Company,  and  to 
be  sole  owner  of  the  stock  of  the  Northern  Aluminum  Company 
and  the  United  States  Aluminum  Company,  manufacturers  of 
alimunum  cooking  utensils  (ibid.,  pp.  12-14,  29). 

'  This  should  not  be  interpreted  by  the  reader  to  mean  that 
the  writer  considers  that  all  restrictive  covenants  are  unfair 
competition.  Such  a  generalization  would  be  altogether  too 
broad  and  unjustifiable. 


Engrossing  Machinery 


153 


every  instance  they  seriously  hamper  the 
operation  of  efficient  competing  organizations, 
and,  in  extreme  cases,  they  may  even  force, 
the  actual  discontinuance  of  such  operations.! 
Moreover,  the  difficulty  or  impossibility  of 
procuring  the  necessary  tools  or  implements 
and  supplies  is  most  discouraging  to  prospective 
competitors.  Thus  the  probability  of  poten- 
tial competitors  becoming  actual  competitors 
is  either  greatly  lessened  or  practically  elimi- 
nated. The  economic  efficiency  of  an  organiza- 
tion may  be  very  great,  but  without  free  access 
to  the  necessary  machinery  and  materials  it 
either  cannot  compete  at  all  or  else  must  do  so 
at  an  enormous  disadvantage.  Elsewhere^  the 
possible  necessity  of  requiring  private  busi- 
nesses to  sell  upon  like  terms  to  all  who  tender 
the  price  has  been  referred  to.  If  competition 
is  to  be  maintained,  it  would  appear  perhaps 
to  follow  that  an  organization  which  obtains 
either  an  exclusive  or  a  dominant  control  of  the 
machinery  and  /  or  materials  used  in  the  manu- 
facturing process  must  be  compelled  to  sell  to 
competitors  upon  terms  substantially  similar  to 
those  which  it  may  itself  enjoy  through  such 
arrangements  as  it  may  have  effected. 

« Chap.  vi. 


m\ 


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m 

.1  'I 


\ 


CHAPTER  rx 
ESPIONAGE 

It  is  a  well-known  fact  that  some  organ- 
izations have  utilized  extremely  questionable 
methods  in  order  to  obtain  information  in  re- 
gard to  the  business  and  operations  of  their 
competitors.  A  report  of  the  Commissioner  of 
Corporations  on  one  industry,  which  appeared 
in  1907,  contained  statements  to  the  effect  that 
railway  employees  were  bribed  to  supply  infor- 
mation in  regard  to  shipments  of  competitors. 
A  great  mass  of  testimony  upon  this  point  has 
also  appeared  in  one  of  the  dissolution  suits 
brought  by  the  government.  A  few  illuistrative 
examples  of  these  practices  may  be  pertinent. 

At  one  place,  according  to  the  testimony, 
advices  were  received  from  railway  clerks  re- 
garding shipments  by  independents  in  that 
territory,  including  both  the  shipments  coming 
in  and  those  going  out.  This  data  was  sent 
by  the  clerks  to  a  post-office  box  without  any 
name,  which  was  rented  for  that  purpose  alone. 
The  information  thus  obtained  was  supplied 
to  the  salesmen  and  agents  of  the  company 

IS4 


in  question  with  instructions  to  secure  the 
business,  and  usually  that  organization  was 
able  to  get  a  man  to  the  customer  before  the 
arrival  of  the  shipment.  At  another  place  a 
freight  handler  was  paid  $2 .00  a  month  to  fur- 
nish information  regarding  the  shipments  of  an 
independent.  At  still  another  point  a  foreman 
or  warehouseman  of  the  Pennsylvania  Railroad 
supplied  one  of  the  companies  with  a  list 
of  competitive  products  passing  through  that 
warehouse.  An  employee  of  this  company 
testified  that  he  secured  reports  regarding 
competitive  shipments  from  the  employees  of 
the  Burlington,  Northwestern,  Milwaukee,  and 
Union  Pacific  railroads  which  covered  all 
independent  shipments  passing  through  his 
district.  These  reports  showed  the  name  of 
the  shipper,  name  and  address  of  the  con- 
signee, and  the  size  of  the  shipment.  The 
employees  supplying  this  information  received 
compensation  for  their  services.* 

« Section  15  of  the  act  creating  the  Interstate  Commerce 
Commission,  as  amended,  provides  that:  "It  shall  be  unlawful 
for  any  common  carrier  subject  to  the  provisions  of  this  Act,  or 
any  ofl&cer,  agent,  or  employee  of  such  common  carrier,  or  for 
any  other  person  or  corporation  lawfully  authorized  by  such 
common  carrier  to  receive  information  therefrom,  knowingly  to 
disclose  to  or  permit  to  be  acquired  by  any  person  or  corpora- 
tion other  than  the  shipper  or  consignee,  without  the  consent  of 
such  shipper  or   consignee,   any   information  concerning    the 


IS6 


II 


li 


f 

i 


\m\i 


m 


Unfair  Competition 


Besides  obtaining  information  in  regard  to 
competitors*  shipments  from  railway  employees, 
there  is  testimony  that  in  this  industry  spies 
and  detective  agencies  were  employed  for  the 
same  purpose. 

The  testimony  is  to  the  effect  that  the 
National  Cash  Register  Company  employed 
secret  agents  who  were  not  known  to  have  any 
connection  with  it.  Such  agents  were  utilized 
for  various  purposes/  and  at  times  obtained 
information  regarding  competitive  business. 
During  the  time  when  the  Foss  Novelty  Com- 
pany was  operating,  one  Ellingwood  was  em- 
ployed by  the  National  to  supply  inside 
information  as  to  where  that  organization 
placed  machines,  the  amount  of  business  which 
it   did,   etc.    At   that   time  Ellingwood  was 

nature,  kind,  quantity,  destination,  consignee,  or  routing  of  any 
property  tendered  or  delivered  to  such  common  carrier  for  inter- 
state transportation,  which  information  may  be  used  to  the 
detriment  or  prejudice  of  such  shipper  or  consignee,  or  which 
may  improperly  disclose  his  business  transactions  to  a  com- 
petitor; and  it  shall  also  be  unlawful  for  any  person  or  corpora- 
tion to  solicit  or  knowingly  receive  any  such  information  which 
may  be  so  used."    An  ahnost  identical  provision  with  reference 
to  water  carriers  is  found  m  section  20  of  the  act  establishing 
the  United  States  Shipping  Board,  approved  September  7,  1916. 
« Carl  G.  Heyne,  record.  State  v.  National  Cash  Register  Com- 
pany, cU.  supra,  Vol.  H,  p.  909.    Edgar  E.  Park,  whose  opera- 
tions were  detailed  in  chap,  ii,  appears  to  have  been  one  of  these 
agents. 


Espionage 


157 


acting  as  bookkeeper  and  salesman  for  the  Foss 
Company.  For  his  services  he  was  paid  a 
salary  of  $25 .00  a  week  by  the  National.^ 

J.  E.  Warren  testified  that,  according  to 
hearsay  and  what  one  Gillies  himself  told  him. 
Gillies  was  discharged  by  the  Lamson  Cash 
Register  Company  on  the  ground  that  he  was 
a  secret  agent  or  spy  for  the  National.^  Otto 
Nelson  was  employed  by  the  National  Cash 
Register  Company  as  a  utility  man  to  secure 
information  in  regard  to  opposition  companies 
and  the  business  which  they  were  doing. 
During  the  fight  against  the  Osbom  Cash 
Register  Company  Nelson  was  sent  to  Detroit 
to  do  what  he  could  to  enlighten  the  National 
in  regard  to  the  competition  of  the  former 
organization  and  to  watch  the  shipments  it 
was  making.^ 

At  another  time  Nelson  was  employed  in 
the  fight  against  the  Lamson  Cash  Riegister 
Company. 

Q where  was  Otto  Nelson  ? 

A.    He  was  in  Boston. 

« J.  E.  Warren,  record,  State  v.  National  Cash  Register  Com- 
pany, cit.  supra f  Vol.  I,  p.  454;  Carl  G.  Heyne,  ibid.,  VoL  II, 
P-  915- 

•  J.  E.  Warren,  ibid..  Vol.  I,  p.  508. 

»  Henry  F.  James,  ibid..  Vol.  I,  pp.  126-29. 


I, 


r 


I' 


•I 


P 


158 


Unfair  Competition 


Q.  What  was  he  doing  at  Boston  ? 

A.  He  was  gathering  what  information  he  could 
from  competition  standpoint  and  reporting  shipments. 

Q.  Reporting  shipments  to  whom  ? 

A .  To  dealers  or  agents. 

Q.  Reporting  shipments  of  what  ? 

A .  The  Lamson  cash  register. 

Q,  To  whom  did  he  report  those  shipments  ? 

A,  To  the  factory. 

Q.  To  the  National  Cash  Register  Company  ? 

A.  Yes. 

Q.  And  do  you  know  how  he  would  learn  of  those 
shipments  ? 

A,    No,  I  do  not. 

Q.    Where  was  he  located  ? 

A,  I  only  know  from  what  he  said;  he  told  me 
that  he  rented  a  room  across  the  street  and  used  a  spy- 
glass to  read  the  addresses. 

Q.  That  is,  used  a  spyglass  to  read  the  addresses 
of  what  ? 

A,    On  boxes. 

Q.    What  boxes,  of  the  Lamson  machine  ? 

A.    Yes.' 

Around  1899  or  1900  Ben  Knecht  was 
employed  in  the  vicinity  of  Columbus,  Ohio, 
in  reporting  the  shipments  of  the  Hallwood 
Cash  Register  Company.  This  information  he 
secured  by  calling  at  the  depots  and  express 
oflSces  and  by  watching  the  wagons  as  they 

*  J.  E.  Warren,  record,  State  v.  National  Cash  Register  Com- 
pany, cit.  supra,  Vol.  I.  pp.  414-15. 


Espionage 


JS9 


came  from  the  factory.'  Heyne  also  testi- 
fied in  June,  191 1,  that  about  two  years  pre- 
viously he  became  convinced  that  the  shipments 
of  his  organization,  the  American  Cash  Register 
Company,  were  known  to  competing  agents 
soon  after  the  goods  left  the  factory.  He  there- 
fore engaged  detectives  to  watch  his  wagons, 
and  they  reported  that  every  day  in  a  certain 
week  a  man  by  the  name  of  Knecht  was  waiting 
at  a  certain  saloon  which  the  delivery  wagons 
of  the  American  were  compelled  to  pass  on 
their  way  to  the  freight  depot.  When  the 
driver  would  make  a  delivery  in  Columbus, 
Knecht  would  make  entries  in  a  book,  appar- 
ently copying  the  addresses  upon  such  shipping 
boxes  as  might  be  seen  when  the  wagon  was 
closely  approached.  When  the  driver  went 
to  the  freight  depot,  the  detectives  reported 
that  Knecht  would  get  on  an  express  wagon, 
apparently  kept  in  waiting  for  him,  and  in  this 
manner  gain  access  to  the  depot.  Inside, 
after  the  Americanos  driver  had  entered  the 
freight  office,  Knecht  would  again  take  out  his 
notebook,  approach  the  shipping  boxes,  and 
make  notes,  evidently  copying  the  addresses. 
The  head  detective  went  to  the  National's 
office  at  Columbus  and  reported  to  Heyne  that 

'  J.  E.  Warren,  ibid.,  p.  426. 


If 

1  \ 


I 


i6o 


Unfair  Competition 


he  had  asked  there  for  this  man  Knecht, 
had  met  him,  and  had  identified  him  by 
having  him  answer  to  his  name  in  the  sales 
offices.' 

Pinkerton  detectives  were  employed  by  the 
National  Cash  Register  Company  during  the 
Hallwood  fight  to  secure  information  in  regard 
to  the  latter  organization  and  its  business. 
From  about  November  or  December,  1904,  to 
March  or  April,  1905,  these  agents  were  again 
employed.  Htynt  was  introduced  to  the  super- 
intendent of  the  agency  and  instructed  by  the 
acting  general  manager  of  the  National  to  have 
him  supply  two  operatives  to  spy  upon  the  affairs 
of  the  International  Cash  Register  Company 
of  Columbus.'  Warren  further  testified  that 
during  the  Hallwood  fight  Pinkerton  detectives 
were  sent  to  the  agents'  school  which  the 
National  maintained,  the  purpose  being  to 
teach  them  to  go  out  and  call  on  users  and  pros- 
pective purchasers  and  also  to  make  such 
reports  as  would  be  valuable  to  the  National.^ 
The  reports  of  the  various  detectives  were  kept 
in  the  vault  of  the  National  Cash  Register 

'  Carl  G.  Heyne,  record,  State  v.  National  Cash  Register  Com- 
pany, cit.  supra.  Vol.  II,  p.  1018-19. 

»  Carl  G.  Heyne,  ibid.,  Vol.  II,  pp.  988-89. 

>  J.  E.  Warren,  ihid.,  Vol.  I,  p.  560. 


Espionage 


161 


Company  in  a  special  compartment  in  charge 
of  Counselman's  secretary.' 

In  the  case  of  the  lumber  trade,  the  govern- 
ment has  alleged  that  Willard  G.  Hollis,  as 
secretary  of  the  Northwestern  Lumbermen's 
Association,  employed  for  a  number  of  years, 
with  the  consent  of  the  officers  of  that  organ- 
ization, a  detective  bureau  imder  the  manage- 
ment of  one  Luke  W.  Boyce.  The  fimction  of 
this  bureau  was  to  obtain  information  con- 
cerning so-called  unethical  shipments  from 
manufacturers  and  wholesalers  to  consumers." 

The  United  Shoe  Machinery  Company  seems 
also  to  have  attempted  to  obtain  mf ormation  in 
a  questionable  fashion.  Frank  Morrison,  an  em- 
ployee in  the  shoe  factory  of  George  E.  Keith, 
and  employed  in  the  plant  of  Thomas  G.  Plant, 
in  the  year  1910,  testified  that  he  was  sent  to 
Mr.  Willson  of  the  United  Shoe  Machinery 
Company  by  a  man  by  the  name  of  Johnson. 
The  following  is  an  extract  from  his  testi- 
mony regarding  his  conversation  with  Willson: 

36.  Int.  What  did  Mr.  Willson  say  to  you  ?  Did 
he  say  anything  to  you  about  a  particular  machine  ? 

Ans.  Well,  he  was  more  after  about  the  toe- 
operating  machine  and  welting. 

*Lee  Counselman,  ibid.,  Vol.  I,  pp.  642-43. 
'Petition,  United  States  v.  Hollis,  cit.  supra,  p.  40.     Cf. 
chap.  vi. 


■1!'. 


l62 


Unfair  Competition 


Espionage 


163 


i 


Iff: 


\ 


37.  Int,  Now,  what  information  did  he  attempt  to 
get  about  that  machine  ? 

Am,  Well,  one  day  he  told  me  if  I  can  get  a  picture 
taken  of  a  certain  machine.  I  told  him  I  couldn't  do 
that.  Well,  that  was  all.  I  didn't  do  no  work  for 
that.    For  somebody  else  I  done  that  work. 

38.  Int.  What  did  you  do  about  demonstrating 
that  machine,  or  distinguishing  the  difference  between 
that  machine  and  the  United's  machine  ? 

Ans,    We  got  a  man  to  come  down — 

39.  Int,    Who  did  you  get  ? 

Ans.  The  old  man  that  used  to  work  there  on  the 
machine. 

40.  Int.    In  Mr.  Plant's  factory  ? 
Ans,    Yes,  sir. 

41.  Int,    What  was  his  name,  if  you  remember  ? 
Ans.    His  name  was  J.  Tobin. 

42.  Int,    What  is  it,  Tobin  ? 

Ans.  J.  Tobin;  Jack,  I  guess  it  was.  We  got  him 
to  come  down  to  Lynn  and  explain  there.  I  didn't 
go  with  them.  They  took  him  down  to  some  factory 
in  Lynn.* 

Abram  Sochat  also  testified  to  the  same 
effect: 

15.  Int.  At  that  conference  did  Mr.  Willson  say 
anything  about  getting  information — ^about  you  gentie- 
men  getting  information  for  him  in  regard  to  the 
number  of  shoes  put  out,  and  the  quality  ? 

Ans.    Yes,  sir. 

»  Frank  Morrison,  brief  for  the  United  States,  United  States 
V.  United  Shoe  Machinery  Company,  cit.  supra,  pp.  356-57, 
quoting  record,  Vol.  IV,  p.  1706. 


16.  Int.    And  who  was  going  in  to  see  the  machines  ? 
Ans.    Yes,  sir. 

17.  Int.  Did  you  have  any  conversation  with  Mr. 
Willson  at  that  time  about  any  particular  machine 
used  in  the  Plant  factory  ? 

Ans.    Yes,  sir. 

18.  Int.    What  was  it? 

Ans.    The  toe-lasting  machine. 

19.  Int.  What  did  Mr.  Willson  say  about  that 
toe-lasting  machine  ? 

Ans.  I  tried  to  explain  to  him  and  he  couldn't 
very  well  understand  me,  and  he  told  me  I  should  go 
down  and  see  Mr.  Richards — me  and  Mr.  Ross  should 
go  down  and  see  Mr.  Richards  in  Lynn. 

20.  Int.    For  what  purpose  ? 

Ans.    To  explain  the  machine  to  him. 

2 1 .  Int.    And  did  you  go  down  to  see  Mr.  Richards  ? 
Ans.    We  did. 

22.  Int.  How  soon  after  you  had  this  conference 
with  Mr.  Willson  ? 

Ans.    I  believe  a  day  or  so. 

23.  Int.    Whom  did  you  meet  there  ? 

Ans.  To  make  it  sure  we  took  another  man  along 
there  that  worked  on  the  machine. 

24.  Int.    Who  was  that  ? 
Ans.    J.  Tobin. 

25.  Int.  You  say  you  had  first  tried  to  explain  to 
Mr.  Willson  ? 

Ans.  Yes.  I  tried  to  explain  it,  and  Mr.  Willson 
could  not  understand  it. 

26.  Int.    Then  you  took  down  Mr.  Tobin  ? 
Ans,    To  Mr.  Richards  in  Lynn. 


■1(1 


II 


4     ■ 
f 


III 


Mill 


164 


Unfair  Competition 


27.  Int.  Did  you  use  the  machine  then  for  the 
purpose  of  explaining  the  difference  ? 

Ans.  I  believe  he  took  us  over  to  P.  J.  Harney *s 
shop,  I  believe  it  was,  and  showed  us  a  No.  5  machine 
up  there  and  showed  us  the  old  Ideal  machine,  I 
believe,  and  explained  the  difference  between  those 
machines  there. 

28  Int,    Who  explained  the  difference  ? 

Ans.    I  tried  a  little.    Mr.  Tobin  tried  a  little. 

29.  Int.  Between  the  Plant  machine  and  those 
machines  ? 

Ans.    Yes. 

30.  Int.  Now,  do  you  know  whether  or  not  Mr. 
Tobin  was  paid  for  going  down  there  that  day  ? 

Ans.    Yes,  sir.    He  got  $3. 

31.  Int.    Do  you  know  who  paid  him  the  $3  ? 
Ans.    Mr.  Richards  paid  him.    Made  out  a  receipt 

and  he  signed  it.' 

It  is  assuredly  true  that  the  selling  efficiency 
of  an  organization  is,  to  a  considerable  extent, 
dependent  upon  its  knowledge  of  the  exact 
state  of  trade  and  its  own  position  in  that  trade 
with  reference  to  competitors.  In  the  interests 
of  its  economic  efficiency,  therefore,  a  concern 
would  appear  entitled  to  obtain  information  in 
regard  to  the  business  of  competitors  through 

'  Abram  Sochat,  brief  for  the  United  States,  United  States  v. 

United  Shoe  Machinery  Company,  cU.  supra,  pp.  363-64,  quoting 

record,  Vol.  IV,  pp.  1732-33.    In  this  connection  cf.  also  original 

petition,  United  States  v.  S.  F.  Bowser,  U.S.D.C.  for  the  District 

of  Indiana,  p.  6. 


Espionage 


i6S 


all  ordinary  business  channels,  such  as  the 
reports  of  salesmen  and  similar  methods.    On 
the  other  hand,  the  resort  to  the  use  of  spies 
and  detectives  for  the  purpose  of  tracing  the 
business  of  competitors,   the  bribing  of  rail-| 
way  and  other  employees  in  order  to  secure  . 
such  information  are  practices  which  should  / 
be   regarded   as   acts  of   unfair   competition.  | 
All  the  requirements  of  productive  and  selling 
efficiency  under  fair  competition  can  be  ful- 
filled by  information  obtained  in  the  regular 
course  of  business  and  without  resort  to  methods 
of  the  character  described. 


Wi 


1 

Hi 


f  I 


CHAPTER  X 
COERCION,  THREATS,  INTIMIDATION,  ETC. 

In  the  course  of  the  competitive  struggle  in 
the  business  world,  statements  may  be  made, 
letters  written,  and  various  things  done  which 
are  either  openly  or  impliedly  threatening  and 
which  are  intended  to  intimidate  and  coerce. 
In  some  cases  the  threat  is  so  veiled  that  it  is 
necessary  to  examine  carefully  the  surrounding 
circumstances  in  order  to  determine  whether 
coercion  or  intimidation  is  intended  or  results. 
In  other  instances  there  is  no  concealment. 

Broadly  speaking,  these  methods  may  be 
said  to  have  two  possible  appHcations.  They 
may  be  used  either  as  the  complement  of  other 
unfair  practices  or  in  order  to  suppress  and 
destroy  competition  generally.  In  the  former 
case  these  methods  occur  only  as  an  aid  to 
other  unfair  practices;  in  the  latter  they  have 
no  necessary  connection  therewith  and  are 
used  quite  independently  thereof. 

Considering  first  the  former  use,  we  find, 
for  example,  that  coercion,  threats,  and  intimi- 
dation have  been  used : 

I.  To  secure  compliance  with  exclusive  arrange- 
ments; 

i66 


Coercion,  Threats,  Intimidation        167 

II.  In  support  of  blacklisting,  boycotting,  white 
lists,  etc. 

III.  To  obtain  conformance  with  conditional  re- 
quirements. 


It  was  related  by  Mr.  William  B.  Dailey 
that  the  Photographic-Supplies  Combination, 
in  an  endeavor  to  enforce  its  exclusive  selling 
arrangements  discussed  in  chap,  v,  had  its 
agents  call  on  dealers  personally  in  reference 
thereto  and  did  not  put  in  writmg  any  state- 
ments which  could  be  used  against  it.  Thus 
Mr.  Moreau,  of  the  Eastman  Kodak  Company, 
visited  some  of  the  dealers  in  New  York.  The 
conversation  which  took  place,  as  the  dealers 
related  it  to  Mr.  Dailey,  ran  somewhat  as 
follows: 

Now,  Mr.  So-and-so,  of  course  you  understand  that 

we  must  get  more  money  for  our  goods We 

are  giving  you  the  full  list  price  and  we  protect  you 
and  we  expect  you  to  stop  handling  these  other  men's 
paper.  Of  course,  we  are  not  making  any  threat; 
we  do  not  say  you  have  to  do  it,  you  understand,  but 
you  know  we  control  cameras  and  films  on  which  we 
have  patents,  and  if  you  could  not  get  these  other 
goods  it  would  be  very  disagreeable  for  you.' 

'W.  B.  Dailey,  Report  of  the  Industrial  Commission,  etc., 
cU.  supra.  Vol.  XIII,  p.  184. 


i68 


Unfair  Competition 


There  can  be  Kttle  doubt  that  in  this  case 
we  encounter  a  scarcely  veiled  threat.  Con- 
sidered m  the  light  of  the  Kodak  combmation's 
poUcy  of  exclusive  selling  and  the  testimony  of 
Mr.  Abbott  and  Mr.  Dailey  regarding  this 
policy/  the  affairs  can  scarcely  be  otherwise 
interpreted. 

In  the  discussion  of  exclusive  arrangements 
in  a  preceding  chapter  it  was  pointed  out  that 
the  Keystone  Watch  Case  Company  mailed 
a  letter  to  the  jobbing  trade  dated  January 
15,  1910,  which  contained,  among  other  state-'' 
ments,  the  following  clause: 

Fourth.  And  further,  we  desire  that  the  jobbers 
to  whom  we  sell  our  goods  bearing  the  following  trade- 
marks, to  wit,  Howard,  Boss,  Crescent,  Planet,  Crown, 
SUveroid,  and  Excelsior  shall  not  deal  in  any  watch 
cases  other  than  those  manufactured  by  us.* 

In  addition,  the  letter  also  made  this  state- 
ment: 

Whether  or  not  our  wishes  as  hereinafter  stated  be 
complied  with  we  shall  from  time  to  time  exercise  our 
right  to  select  the  jobbers  to  whom  we  shall  sell  our 
goods,  and  we  shall,  irrespective  of  any  past  dealings, 
refuse  to  sell  to  those  jobbers  who,  in  our  opinion,  handle 
our  goods  in  a  manner  detrimental  to  our  interest  or 


*  Chap.  V,  supra. 


Ibid. 


Coercion,  Threats,  Intimidation        169 

whose  dealings  with  us  are  in  any  other  respects  unsatis- 
factory.^ 

The  implied  threat  to  cut  off  dealers  which 
was  contained  in  this  letter  was  reiterated 
personally  by  the  representatives  of  the  Key- 
stone Company,  as  was  testified  to  by  a  con- 
siderable number  of  jobbers.  One  of  the  most 
interesting  bits  of  testimony  is  that  of  Morris 
Eisenstadt,  of  the  Eisenstadt  Manufacturing 
Company,  wholesale  jewelers  in  St.  Louis: 

Q.  Now,  will  you  state  fully  in  substance,  as  nearly 
as  you  can,  the  conversation  that  you  had  with 
Mr.  Levy*  and  with  Mr.  Hyatt,^  or  with  either  of  them, 
at  that  time  relating  to  the  letter  of  January  15,  1910, 
and  its  substance? 

A.  They  stated  in  substance  that  the  company 
meant  everything  that  was  implied  in  that  circular 
letter,  and  I  says  to  Mr.  Levy,  **Mr.  Levy,  don't  you 
consider  that  a  kind  of  little  arbitrary?"  And  he 
said,  "I  am  not  here  to  discuss  that,  but  am  instructed 
to  tell  you  what  the  company  is  going  to  do."  I 
said,  "Won't  you  give  us  a  little  time  to  consider 
the  thing,  as  this  affects  the  general  policy  of  our 
business,  and  I  would  like  to  have  a  little  time  to  think 
it  over,  and  I  will  give  you  an  answer  within  ten  days." 
And  he  said,  "No;  I  have  been  instructed  to  tell  you 

*  Petition,  United  States  v.  Keystone  Watch  Case  Company, 
cU.  supra,  p.  14. 

"  Representing  the  Keystone  Company. 

'  Representing  the  Keystone  Company. 


I70 


Unfair  Competition 


ipHH'!' 


r 


k 


1' 


that  unless  you  can  give  us  your  favorable  answer 
to  it  we  will  discontinue  shipment  and  close  your 
account." 

Q.  Was  there  any  further  conversation  in  substance 
than  what  you  have  stated  between  you  and  Mr. 
Levy? 

A.  Well,  we  talked  for  an  hour  or  two,  but  I 
cannot  recall  exactly  all  that  was  said,  but  that  was  the 
substance  of  it.  But  I  further  said  to  Mr.  Levy; 
I  said,  **You  don't.  Levy,  mean  to  tell  me  that  our 
past  relations,  our  volume  of  business  and  friendly 
relations  with  the  officers  of  the  company  are  noV 
going  to  cut  any  figure  in  this  deal  ?  Are  you  simply 
going  to  be  arbitrary  without  any  reference  to  our  past 
relations?" 

Q.    And  what  did  he  say  to  that  ? 

A.  He  said,*' We  certainly  wiU."  He  said,  "Those 
are  my  instructions;  I  have  nothing  to  argue  with 
you.  I  have  simply  to  give  you  our  instructions,  the 
instructions  I  received  from  headquarters,"  and  I  said 
a  few  things  that  I  do  not  want  to  say  again.  And 
it  is  not  necessary  to  print  it;  it  would  not  look  well 
in  print. 

Q,  What  was  the  occasion  of  your  saying  those 
things? 

A,    I  was  pretty  hot  under  the  collar. 

Q.    And  why  ? 

A,  To  think  that  the  concern  would  treat  us  that 
way  after  all  these  long  years  of  friendly  relations 
and  close  connections;  we  certainly  had  a  great  regard 
for  them;  always  did. 


Coercion,  Threats,  Intimidation        171 

Q.  Did  you  make  any  reference  to  it  as  a  "high- 
handed" proposition? 

A,    I  expressed  myself  pretty  fully  in  that  respect. 

Q,  Was  Mr.  Hyatt  present  during  this  conver- 
sation ? 

A .    He  was. 

Q.    Did  he  take  any  part  in  it  ? 

A.    None  at  all;  he  had  nothing  to  say. 

Q.  Now,  what  was  the  situation  when  Mr.  Levy 
left — at  what  point  had  you  reached  when  Mr.  Levy 
left? 

A.  We  had  not  reached  any  point,  because  I  had 
given  him  no  definite  answer,  but  he  told  me — he 
said,  "  We  will  have  to  have  your  reply  or  we  will  cease 
shipment,"  and  I  said,  "Levy,  you  don't  mean  to  tell 
me  you  are  going  to  refuse  to  fill  the  orders  we  have 
already  placed?"  and  he  said,  "We  certainly  will"; 
and  they  did,  and  did  not  ship  us  anything  until  we 
had  complied  with  the  demand. 

Q,  Is  it  a  fact  that  you  received  no  shipment 
from  them  from  the  time  of  Mr.  Levy's  visit  until  you 
wired  them  you  would  come  to  terms,  as  you  have 
stated  ? 

A,    Yes,  sir.' 

Similarly,  in  the  suit  against  the  New 
Departure  Manufacturing  Company  it  was 
charged  that  Gales  P.  Moore,  the  patent  coun- 
sel of  that  organization,  from  time  to  time 
sent  numerous  communications  to  jobbers  and 

*  Morris  Eisenstadt,  government's  evidence,  United  States 
V.  Keystone  Watch  Case  Company ^  cit.  supra,  Vol.  II,  pp.  221-22. 


\ 


ir 


172 


Unfair  Competition 


dealers  threatening  them  with  damage  suits  in 
case  they  sold  or  attempted  to  sell  other 
coaster  brakes  than  those  which  were  manu- 
factured by  the  New  Departure  Company/ 

n 

At  a  meeting  in  St.  Louis  in  1902  the  Limi- 
ber  Secretaries'  Bureau  of  Information,^  adopted 
a  constitution  and  by-laws  and  also  a  declara- 
tion of  purposes  from  which  the  following 
quotation  is  taken: 

We  recognize  the  right  of  the  manufacturer  and 
wholesaler  to  sell  in  whatever  market,  to  whatever 
purchaser,  and  at  whatever  price  they  may  see  fit. 

We  claim  for  ourselves,  both  individually  and  col- 
lectively, the  right  to  buy  of  such  manufacturers  or 
wholesalers  or  their  agents  as  we  may  prefer,  and  to 
refrain  from  buying  of  those  who  disregard  the  equities 
of  trade  to  our  injury  and  the  demoralization  of  the 
retail  lumber  business.^ 

On  its  face  this  declaration  appears  to  be 
innocent  enough.  When  examined  and  con- 
sidered in  the  light  of  the  classification  methods 

» Petition  in  equity,  United  States  v.  New  Departure  Manu- 
facturing Company^  U.S.D.C.  for  the  Western  District  of  New 
York,  p.  15. 

•The  Lumber  Secretaries'  Bureau  of  Information  was  an 
organization  composed  of  the  secretaries  of  various  state  asso- 
ciations of  lumber  dealers. 

» Petition,  United  Staks  v.  HoUis,  cU.  supra,  p.  44. 


Coercion,  Threats,  Intimidation        173 

utilized  by  the  lumber-trade  associations  and 
the  boycotting  of  individuals  failing  to  conform 
to  the  standards  of  ethics  which  these  organiza- 
tions laid  down,  its  innocent  character  disap- 
pears and  it  becomes  a  threat  to  blacklist  and 
boycott  concerns  which  ship  directly  to  con- 
simiers.^ 

Ill 

In  order  to  obviate  some  of  the  "tying"  pro- 
visions in  the  Shoe  Machinery  Company's 
leases  which  manufacturers  foimd  so  obnoxious, 
the  legislature  of  Massachusetts  in  1907  enacted 
a  law  which  provided,  among  other  things,  that: 

No  person,  firm,  corporation,  or  association  shall 
insert  in  or  make  it  a  condition  or  provision  of  any 
sale  or  lease  of  any  tool,  implement,  appliance,  or 
machinery  that  the  purchaser  or  lessee  thereof  shall 
not  buy,  lease,  or  use  machinery,  tools,  implements 
[etc.],  of  any  person,  firm,  corporation,  or  association 
other  than  such  vendor  or  lessor;  .  .  .  .* 

In  spite  of  this  statute  the  United  Shoe 
Machinery  Company  continued  to  use  practi- 
cally the  same  contract  as  had  previously  been 

*  Cf .  chap,  vi,  supra. 

'  Quoted  from  the  law  as  read  into  the  testimony  in  Hearings 
before  the  House  Committee  on  the  Judiciary,  Trust  Legislation 
Serial  No.  2,  Patent  Legislation  Serial  No.  i,  cit.  supra,  p.  72. 
Obviously  this  applies  both  to  exclusive  and  to  conditional 
arrangements. 


I    I 


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1)1 


m* 


W  i 


174 


Unfair  Competition 


i 


I 


L 


employed.    To  it,  however,  was  attached  the 
Mowing  rider: 

Any  and  all  agreements,  stipulations,  provisions, 
and  conditions  hereinbefore  printed  in  this  instrument 
which  are  in  violation  of  the  provisions  of  chapter  469 
of  the  acts  of  the  General  Court  of  Massachusetts  for 
the  year  1907,  if  there  are  any  such,  are  hereby  stricken 
out  before  execution  and  are  not  agreed  to  nor  made 
a  part  of  this  contract. 

Independent  of  and  in  addition  to  all  other  rights 
hereunder  the  lessor  shall  have  the  right  to  terminate 
this  lease  and  license  at  any  time  upon  jo  days^  notice 
in  writing  to  the  lessees 

Is  not  the  last  paragraph  of  this  lease  a 
veiled  threat  to  cancel  leases  for  all  machines 
if  any  concern  did  that  which  the  law  was  clearly 
intended  to  give  it  the  permission  to  do?  Is 
not  the  intent  here  to  coerce,  to  compel,  manu- 
facturers to  use  the  machines  of  the  United 
Company,  no  matter  what  they  had  the  privi- 
lege of  doing  under  the  law  ?  Mr.  Charles  H. 
Jones,  testifying  in  regard  to  the  last  paragraph 
above  quoted,  termed  it  a  "joker,''  and  "a 
'joker'  of  a  very  serious  nature." 

It  reads  "Independently  of  and  in  addition." 
Please  observe  that  their  right  to  terminate  upon  30 

*  Hearings  before  the  House  Committee  on  the  Judiciary, 
Trust  Legislation  Serial  No.  2,  Patent  Legislation  Serial  No.  i, 
cit.  supra,  p.  72.    Italics  are  the  writer's. 


Coercion,  Threats,  Intimidation        175 

days'  notice  does  not  depend  upon  or  is  not  in  conse- 
quence of  any  violation  on  our  part.  It  gives  them 
the  arbitrary  right  to  terminate  this  lease  at  any  time, 
with  or  without  reason,  upon  30  days'  notice.' 

To  the  extent  that  threats,  coercion,  and 
intimidation  are  used  in  order  to  effectuate 
other  unfair  arrangements,  it  follows  that  they 
shoidd  always  be  regarded  as  unfair.  But 
while  thus  frequently  used  in  supplementing 
other  unfair  competitive  practices,  the  methods 
discussed  in  this  section  are  perhaps  equally  if 
not  more  often  employed  for  the  purpose  of 
suppressing  and  destroying  competition  gener- 
ally. In  some  cases  they  are  even  found  where 
no  other  unfair  method  of  competition  appears. 
But  more  commonly  perhaps  they  are  to  be 
discovered  in  conjunction  with  other  unfair 
practices.*  At  times  these  methods  may  be 
directed  primarily  to  hampering  existing  compe- 
tition. In  other  instances  it  may  be  attempted 
to  prevent  potential  competitors  from  actually 
operating,  or  again  both  these  objects  may  be 
sought.  An  illustration  of  the  first  class  of 
cases  may  be  taken  from  the  trade  in  agricul- 
tural implements. 

*  Charles  H.  Jones,  ibid.,  p.  73. 

» Though  not  in  the  sense  of  supplementing  them,  as  in  the 
case  of  the  illustrations  just  discussed. 


iW 


V       ' 


176 


Unfair  Competition 


iii>i 


m\\ 


During  the  season  of  1897  Adriance,  Piatt 
&  Company  marketed  about  700  harrows. 
In  the  succeedmg  year  its  busmess  increased 
to  about  2,000  harrows  and  the  outlook  for 
1899  was  even  more  promising.  Before  the 
selling  campaign  of  1899,  however,  the  Adriance, 
Piatt  Company  was  in  receipt  of  a  notice  from 
the  National  Harrow  Company'  in  which  the 
latter  organization  stated  that  it  believed  the 
products  of  the  former  constituted  an  infringe- 
ment of  some  of  its  patents.  The  Adriance, 
Piatt  Company  denied  the  infringement  and 
requested  the  Harrow  Company  to  bring  suit. 
The  latter  refused  to  do  so,  however,  and 
asserted  that  it  proposed  in  its  own  way  to 
prevent  the  Adriance,  Piatt  Company  from 
building  harrows.  The  Harrow  Company 
thereupon  proceeded  to  circularize  the  cus- 
tomers of  the  Adriance,  Piatt  Company  in 
various  sections  of  the  country.  One  of  these 
circulars  contained  a  picture  of  the  Adriance, 
Piatt  harrow  with  this  description:  "  *The 
Buckeye,'  manufactured  by  Adriance,  Piatt 
&  Company,  Poughkeepsie,  N.Y.,  and  claimed 
by  us  to  be  made  in  infringement  of  our 
patents."    The  circular  went  on  to  caution 

*  The  National  Harrow  Company  was  not  a  manufacturer  of 
harrows  but  was  merely  the  owner  of  a  number  of  patents  which 
it  licensed  manufacturers  to  use  under  a  royalty  arrangement. 


Coercion,  Threats,  Intimidation        177 

dealers  not  to  purchase  harrows  which  did  not 
bear  the  license  label  of  the  Harrow  Company. 
The  circular  likewise  contained  the  following 
statements:  "We  have  yet  to  find  a  harrow  of 
recent  and  modern  construction  that  does  not 
embody  one  or  more  of  our  patents."  "We 
regret  that  we  are  obliged  to  hold  the  dealers 
responsible,  but  this  cannot  be  avoided,  as  in 
many  cases  the  manufacturers  would  not  be 
able  to  settle  our  claims." 

According  to  the  opinion  in  the  case,  these 
circulars  were  "  followed  up  "  by  letters  directed 
to  the  same  persons  and  of  the  same  general 
character.  Extracts  from  two  of  these  letters 
are  given  in  the  decision.    One  reads  as  follows: 

We  have  from  time  to  time  written  you  and  mailed 
you  circulars  regarding  your  handling  the  Adriance, 
Piatt  &  Company  spring-tooth  harrows,  which  are 

claimed  to  infringe  our  patents We  are  in  duty 

bound  to  protect  our  Ucensees,  their  customers,  and 
ourselves,  and  shall  sue  all  dealers  who  persist,  after  our 
repeated  warnings,  in  handling  infringing  goods.  We 
are  constantly,  bringing  suits  wherever  these  dealers 
are  found.  This  we  shall  continue  to  do  till  our  rights 
are  fully  respected. 

The  excerpt  from  the  second  letter  stated 
that: 

It  is  claimed  by  this  company  that  it  is  impossible 
to  construct  a  modem  spring-tooth  harrow,  such  as 


\  ' 


178 


Unfair  Competition 


Coercion  J  Threats,  Intimidation        179 


t: 


K 


can  be  sold  at  the  present  time,  without  infringing 
several  of  the  numerous  patents  owned  by  us.  We 
do  not  deem  it  necessary  to  give  you  further  warning 
notice  than  this  at  this  time.' 

An  equally  interesting  case  of  a  similar  char- 
acter is  that  of  the  Vacuum  Cleaner  Company, 
which,  it  was  charged,  for  some  two  years  sent 
threatening  letters  and  circulars  to  the  customers 
of  the  Electric  Renovator  Manufacturing  Com- 
pany, which  concern,  it  alleged,  was  infringing 
its  patents.  At  the  same  time  it  refused  to  bring 
suit,  in  spite  of  having  been  requested  to  do  so 
by  the  Renovating  Company.  One  of  the  cir- 
culars thus  sent  out  around  1910  was  entitled 
"Warning,"  and  read: 

Our  patents  have  been  acknowledged  and  settle- 
ments made,  suits  have  been  withdrawn  and  hcenses 
issued  by  us  to  the  following  concerns:  McCrum- 
Howell  Company  of  New  York,  ....  Duntley  Manu- 
facturing Company  of  Chicago,  Keller  Manufacturing 
Company  of  Philadelphia.  Any  dealer  or  user  buying 
apparatus  from  these  firms  is  within  his  rights  and 
will  not  be  disturbed.  All  others  may  expect  trouble 
until  they  comply  with  the  laws  and  obtain  proper 
authority  from  us  under  our  patents.* 

It  is  of  course  right  and  proper  that  a  patentee 
give  due  notice  of  an  infringement.    When  the 

« 121  Fed.  827.    Cf.  pp.  828-29. 
» 189  Fed.  754.    Cf.  pp.  756-5 7- 


matter  of  infringement  is  in  doubt,  however, 
and  the  patentee  while  refusing  to  bring  suit 
pursues  a  policy  of  threatening  the  actual  or 
prospective  customers  of  another  organization, 
a  strong  presumption  exists  that  the  latter 
concern  is  not  an  infringer  and  that  the  alle- 
gation of  infringement  is  not  made  in  good 
faith.  That  threats  and  intimidation  should 
imder  such  circumstances  be  regarded  as  unfair 
is  obvious.  They  should  of  a  certainty  be 
prevented,  since  they  might  injure  or  destroy 
the  business  of  an  efficient  concern  not  an 
infringer  and  therefore  entitled  to  compete. 

Similarly,  an  organization  may  attempt  in 
various  ways  to  deter  prospective  competition. 
In  the  discussion  of  bogus  independent  con- 
cerns, in  chap,  ii,  reference  was  made  to  the 
acquisition  of  the  Western  Glucose  Company' 
by  the  Royal  Baking  Powder  Company  in  1908. 
The  government  has  asserted  that  the  purpose 
of  this  acquisition  on  the  part  of  the  Baking 
Powder  Company  was  to  have  the  acquired 
concern  engage  in  the  manufacture  of  glucose, 
starch,  and  other  com  products  and  also  to  mix 
table  syrups.    The  government  further  alleged 

"  The  name  was  changed  to  American  Maize  Products  Com- 
pany after  the  Royal  Baking  Powder  Company  obtained  con- 
trol.   Cf.  supra.,  chap.  ii. 


i8o 


Unfair  Competition 


m 


that  the  Com  Products  Refining  Company 
thereupon  threatened  to  engage  in  the  manu- 
facture of  baking  powder,  and  to  that  end  pro- 
cured certain  baking-powder  machinery  which 
was  afterward  sold  to  the  Royal  Baking  Powder 
Company/  a  compromise  having  been  arrived 
at  between  the  two  concerns.' 

In  the  study  of  the  subject  of  unfair  com- 
petition the  writer  has  encoimtered  only  one 
instance  of  the  intimidation  of  capital.  Though 
occurring  in  Europe,  it  was  the  work  of  an 
American  company,  and  it  is  cited  as  illus- 
trative of  the  possibihties  in  this  direction. 

In  the  course  of  his  operations  as  an  inde- 
pendent cash-register  manufacturer  Edgar  Park^ 
was  sent  to  Europe  in  connection  with  the 
Potin  competition.  Julian  Potin,  of  Paris, 
controlled  a  French  cash  register  company 
which  built  a  register  named  "Frane."  Park 
saw  Potin,  to  whom  he  introduced  himself  as 
an  American  manufacturer  of  cash  registers 
backed  by  a  firm  in  London  by  the  name  of 
Morgan  &  Company,  to  which  concern  Park 
had  his  mail  addressed  while  in  Europe.    He 

'  Petition,  United  States  v.  Com  Products  Refining  Company^ 
cit.  supra,  pp.  22-23. 

*  Cf.  chap.  iL 

» For  other  instances  of  Park's  activities  cf.  supra,  chap.  ii. 


Coerciony  Threats,  Intimidation        i8i 

became  very  friendly  with  the  Frenchman  and 
also  with  the  head  mechanic  and  inventor  of 
the  Frane  machine,  a  Mr.  Fredemane.  Park 
discussed  the  Potin  model  and  the  strength 
of  the  National  Company.  Potin  had  been 
advised  that  his  register  infringed  the  patents 
of  the  National,  and  Park  submitted  opinions 
from  his  patent  attorneys  apparently  corrobo- 
rating this  statement  from  what  Potin  regarded 
as  an  independent  source.  Park  reported  to 
Heyne  that  Potin  had  great  hopes  of  the  Ger- 
man market  for  his  cash  register.  The  man- 
ager of  the  NationaFs  German  house  further 
informed  Heyne  that  Stollwerck,  the  chocolate 
manufacturer  of  Cologne,  had  become  interested 
in  the  sale  of  the  French  machine.  He  also 
told  Heyne  that  he  had  visited  Stollwerck  in 
the  effort  to  dissuade  him  from  becoming  con- 
cerned in  the  sale  of  the  Frane  register  finan- 
cially or  otherwise  but  had  been  unsuccessful. 
Having  reported  to  the  Dayton  office,  Heyne 
was  instructed  to  see  Stollwerck  himself  and 
did  so,  accompanied  by  the  German  manager. 
He  related  the  means  at  the  disposal  of  the 
National  and  "the  particular  line  of  argument" 
which  he  had  received  from  Dayton.  This  was 
"to  tell  them  that  they  would  lose  their  money 
as  surely  as  other  concerns  who  had  invested 


II 


i 


w 


l82 


Unfair  Competition 


1 1 


111 


i 


•  I 


money  before  them."  The  next  time  that 
Heyne  called  upon  Stollwerck  he  was  told  that 
the  latter  did  not  wish  to  become  financially 
interested  in  the  Frane  register.^ 

The  measures  of  intimidation  employed  by 
the  National  Cash  Register  Company  often 
showed  considerable  ingenuity  and  are  at  all 
times  highly  interesting.  Probably  the  most 
notorious  scheme  of  this  organization  was  the 
operation  of  the  two  display  rooms  known 
as  the  "gloom  room"  and  the  "graveyard."* 
Both  appear  to  have  been  used  in  cases  of 
existing  competition  as  well  as  potential  com- 
petition. The  following  testimony  indicates 
the  character  of  these  rooms: 

Q.  Now,  you  have  referred  to  a  room  known  as  the 
"gloom  room*';  just  tell  us  about  that  "gloom  room." 

A,  This  was  a  room  fixed  up  especially  to  show 
visitors  and  competitors  and  people  who  had  models 
to  sell. 

Q,    What  was  kept  in  that  room  ? 

A.  Models  of  National  cash  registers  from  the 
early  days  up  to  the  latest  date  and  models  of  all  com- 

« Carl  G.  Heyne,  record,  State  v.  National  Cash  Register  Com- 
panyy  cit.  supra.  Vol.  II,  pp.  948-49, 967-^- 

*  It  is  not  entirely  dear  from  the  records  in  the  two  cash 
register  cases  whether  there  was  one  or  two  of  these  rooms.  As 
nearly  as  the  writer  has  been  able  to  determine,  however,  there 
were  two,  although  they  may  have  been  operated  at  different 
periods. 


Coercion,  Threats,  Intimidation        183 

peting  machines  of  any  note  that  had  been  manu-. 
factured  up  to  the  present  time. 

Q.  And  was  there  anything  on  the  competitive 
machines  that  were  there  to  indicate  what  had  become 
of  them  or  how  much  money  had  been  lost  in  them  ? 

A.    There  were  cards. 

Q.    Showing  what  ? 

A,  When  they  went  in  business  and  what  it  had 
cost  them  to  continue  in  business  and  when  they  went 
out  of  business.' 

Q.  Now,  Mr.  Warren,  were  you  familiar  with  what 
was  known  as  the  "graveyard"  at  the  factory  of  the 
National  Cash  Register  Company  ? 

A,    Yes. 

Q,    Just  describe  what  that  was,  what  it  consisted  of. 

A,  It  was  a  place  where  we  displayed  the  compe- 
tition machines  that  we  had  taken  out  from  time  to 
time. 

Q,    And  how  large  a  room  was  it  ? 
A.    Well,  it  covered  probably  half  the  floor  of  the 
main  building. 

Q.  About  how  many  square  feet,  approximately, 
would  you  think  there  was  in  that  room  ? 

A,  When  it  comes  to  feet,  or  anything  like  that — 
let's  see — it  would  cover  a  space  at  least  one  hundred 
feet  long  by  fifty  feet  wide;  about  that. 

Q,  How  were  those  competitive  machines  arranged 
in  the  "graveyard"? 

« J.  E.  Warren,  record,  State  v.  National  Cash  Register  Com- 
Pany,  cit.  supra,  Vol  I,  p.  552. 


^\ 


i! 


i(!^ 


Ill: 


184 


Unfair  Competition 


A,    Oh,  we  arranged  the  different  makes  together. 

Q.  And  how  were  those  competitive  machines 
labeled,  if  at  all  ? 

A,  When  they  went  into  business  and  when  they 
went  out;  the  date;  the  amount  of  money  the  firms 
lost  that!  tried  to  manufacture  and  market  those 
machines. 

Q.  About  how  long  was  the  "graveyard"  main- 
tained, to  your  knowledge  ? 

A,    From  the  beginning  of  the  first  competition. 

Q.  And  were  they  still  maintaining  it  when  you 
left  in  1907  ? 

A.    Yes.' 

Further  testimony  of  Mr.  Warren  in  the 
federal  suit  against  John  H.  Patterson  is  indica- 
tive of  the  purposes  of  these  exhibitions: 

When  a  new  concern  was  considering  going  into 
business,  we  would  be  glad  to  have  them  come  to  the 
factory  to  look  over  the  models  we  had  that  would 
antedate  theirs,  let  them  see  what  we  had  there  and 
the  different  models  we  made.  It  might  prevent  them 
from  going  into  the  business,  save  money  to  ourselves 
and  them,  because  they  might  find  something  there 
that  was  really  further  advanced  than  what  they 
could  do,  I  mean  the  new  concern  going  into  the  cash- 
register  business.  The  idea  was  to  prevent  you  from 
going  into  the  business  of  manufacturing  cash  registers 
by  showing  what  we  had  there,  our  strength,  organ- 

'  J.  E.  Warren,  ihid.,  pp.  461-62. 


Coerciony  Threats,  Intimidation        185 

ization  and  the  line  of  machines  we  had,  to  try  to 
convince  you  that  we  had  something  superior  to  what 
you  had,  and  that  you  would  only  lose  money  by  going 
into  the  business.' 

The  testimony  of  Lee  Counselman  gives  some 
further  conception  of  the  purpose  of  these  dis- 
play rooms: 

Q.  What  did  you  call  this  process  of  taking  people 
through  who  were  either  in  the  cash-register  business 
or  contemplated  going  in  ? 

A,  Well,  it  was  a  process  of  education  for  the  pur- 
pose of  glooming  them. 

Q.    Wasn't  that  called  the  glooming  process  ? 

A.    That  is  what  they  wanted  to  accomplish,  yes. 

Q.  State  whether  or  not  that  was  not  a  particular 
system  of  eliminating  competing  companies. 

A,  It  was  there  for  two  purposes;  one  was  to  show 
every  visitor  coming  to  the  National  Cash  Register 
Company  how  strong  we  were,  and  how  many  people 
had  gone  out  of  the  business,  and  the  next  object  was 
to  show  the  competitor  how  many  people  had  gone  in 
and  out  and  how  much  money  they  had  lost,  and  we 
tried  to  make  him  think  the  same  thing.* 

In  discouraging  or  intimidating  actual  com- 
petition, besides  using  the  "gloom  room''  and 

*  J.  E.  Warren,  record,  Patterson  v.  United  States,  cit.  supra. 
Vol.  I,  p.  142. 

»Lee  Counselman,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra,  Vol  I,  p.  586.  Cf.  also  Counselman,  record, 
Patterson  v.  United  States,  cit.  supra,  Vol.  I,  p.  401. 


II 


M 


i86 


Unfair  Competition 


I' 


ifii 


m 
"'I 


the  "graveyard,"  National  "knockers'''  for 
their  machines  were  sometimes  shown  to  com- 
peting manufacturers  and  allegations  of  patent 
infringement  or  actual  mfringement  suits  called 
to  their  attention.  Chalmers  related  some  of 
these  cases.  He  testified  that  he  attempted 
to  persuade  Dr.  Pierce,  manufacturer  of  the 
Pierce  Ideal  register,  to  come  to  Dayton.  Pierce 
being  unable  to  do  so,  he  arranged  a  meeting 
with  him  in  Buffalo,  to  which  city  he  took 
an  Ideal  machine  and  also  the  machine  which 
the  National  was  using  in  competition  against 
it.  At  a  second  interview  Chalmers  showed 
the  opinions  of  the  National  patent  attorneys 
in  which  it  was  claimed  that  the  Ideal  in- 
fringed National  patents.  At  another  time  the 
representatives  of  the  Metropolitan  Register 
Company  were  induced  to  come  to  Dayton. 
They  were  shown  through  the  factory, 
historical  room,*  and  inventions  room,^  and 
they  were  also  shown  the  machines  which 
the  National  could  use  against  them  in  com- 
petition. 

'This  term  is  fully  explained  in  chap,  iii,  on  "Fighting  In- 
struments.'' 

•Room  showing  all  models  of  the  National  from  the  first 
ones  made  down  to  the  latest. 

*  This  appears  to  have  been  the  correct  term  for  "gloom  foom," 
the  latter  being  a  slang  expression. 


Coercion,  Threats,  Intimidation        187 

One  Theobald,  and  other  members  of  the 
Board  of  Directors  of  the  Toledo  Scales  and 
Cash  Register  Company,  met  certain  National 
officials  m  New  York.  The  latter  had  with 
them  one  of  the  Toledo  machines  and  also  one 
of  the  machines  which  had  been  built  to  meet 
it,  and  it  was  explained  to  the  Toledo  officials 
that  the  National  intended  to  put  this  machine 
on  the  market  at  a  price  less  than  their 
machine  brought.  There  were  also  statements 
to  the  effect  that  the  machine  which  the  Toledo 
Company  was  about  to  put  on  the  market 
infringed  a  patent  of  the  National's. 

Rush  Taggart  of  the  Union  Cash  Register 
Company,  was  also  invited  to  Dayton,  taken 
through  the  historical  room,  and  shown  his  own 
machine  and  the  machine  which  the  National 
had  built  to  parallel  it.  He  was  told  that  the 
National  intended  to  sell  its  machine  for  less 
money  than  his.* 

F.  C.  Osbom,  formerly  of  the  Osbom  Cash 
Register  Company,  testified  that  on  his  visit 
to  Dayton — 

they  showed  us  the  plant  and  also  plans  for  extensions 
of  their  plant;  they  showed  us  a  register  which  in 

»Hugh  Chahners,  record,  Patterson  v.  United  States^  cit, 
supra,  Vol  I,  pp.  468-69,  471-74,  476-77-  Cf.  also  Rush  Tag- 
gart, ibid.,  pp.  513-15- 


ii 


H 


ii 


I 


ini 


ii 


li 


i 


m  ^■ 


i88 


Unfair  Competition 


appearance  resembled  our  register  very  much,  and  also 
the  tools  for  manufacturing  this  register,  stating  that 
they  were  about  ready  to  put  it  upon  the  market  at  a 
low  price;  at  one  meeting  which  we  had  during  this 
stay  they  exhibited  to  us  in  one  room  all  of  the  models 
of  the  different  styles  of  registers,  and  in  the  speeches 
which  were  made  stated  that  with  their  organization 
and  the  various  registers  which  they  made,  especially 
with  the  low-priced  registers  which  they  intended  to 
put  on  the  market,  we  would  not  be  able  to  compete.' 

"Confidential  statements"  were  prepared  by 
the  National  Cash  Register  Company  against 
various  concerns.  They  "contained  a  record 
of  all  suits,  opinions  of  patent  attorneys,  and 
anything  that  appeared  to  be  in  evidence 
against  that  particular  company."^ 

In  the  Michigan  case  Counsehnan  further 
explained  the  purpose  of  these  statements  as 
follows: 

A,  Well,  the  object  was  to  frighten  them;  those 
statements  were  gotten  out  to  dealers  and  to  agents 

» F.  C.  Osbom,  record,  State  v.  National  Cash  Register  Com- 
pany, cit.  supra,  Vol.  II,  p.  864. 

»Lee  Coimselman,  record,  Patterson  v.  United  States,  cit. 
supra,  Vol.  I,  p.  405.  Counselman  also  testified  in  the  same 
suit  that,  except  for  the  first  two  or  three,  the  confidential  state- 
ments were  made  under  his  supervision  and  that  President  Pat- 
terson was  the  one  who  first  thought  of  the  idea  (Counselman, 
ibid.).  Chabners  testified  that  the  first  of  the  confidential  state- 
ments was  prepared  by  Mr.  Patterson,  Counselman,  Morse, 
and  himself  and  that  it  was  O.K.'d  by  Sigler  as  attorney  before 
it  was  sent  out  (Hugh  Chahners,  ibid.,  Vol  I,  p.  503). 


Coercion,  Threats,  Intimidation        189 

and  to  district  managers;  they  were  gotten  out  for 
that  purpose,  so  that  it  would  not  look  as  if  they  were 
gotten  out  for  any  one  competitor. 

Q,  And  were  they  sent  out  as  matter  for  salesmen 
and  agents  ? 

A.    No. 

Q.    To  whom  were  they  sent  ? 

A.  They  were  sent  to  the  competitor  that  they 
were  gotten  up  on. 

Q.  But  apparently  addressed  to  your  agent  or 
salesman  ? 

i4.  Well,  it  was  meant  to  appear  that  some  agent 
mailed  it  in  to  them.' 

One  of  the  most  troublesome  competitors  of 
the  National  was  W.  T.  McGraw,  who  was  in 
the  cash-register  business  for  many  years  under 
various  names,  manufacturing  several  different 
makes  of  the  registers,  among  which  were  the 
Globe,  Continental,  Illinois,  St.  Louis,  and 
others.  Serious  efforts  were  made  by  the 
National  in  1904  to  persuade  McGraw  to  dis- 
continue. He  was  invited  by  that  organ- 
ization to  visit  Dayton  and  finally  did  so. 
Upon  his  arrival  he  appears  to  have  been 
"gloomed"  in  the  orthodox  manner  and  later 
went  to  lunch  at  the  officers'  club  with  Chalmers, 
Counselman,  and  others.  President  Patter- 
son dropped  in,  and  McGraw  testified  that 

*  Lee  Counselman,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra.  Vol.  I,  p.  606. 


m 


r 


190 


Unfair  Competition 


it 


the  general  conversation  was  that  no  com- 
pany could  succeed  against  the  organization 
of  The  National  Cash  Register  Company." 
McGraw  also  related  the  following: 

Just  about  that  time  he'  picked  up  a  large  water 
bottle;  sat  it  [sk]  down;  and  said  that  that  represented 
The  National  Cash  Register  Company.  He  then 
reached  around  and  found  a  little  salt  cellar,  which  was 
the  smallest  object  on  the  table,  and  set  it  down  by 
the  water  bottle.  He  said,  "Now,  that  represents 
The  National  Cash  Register  Company;  that  salt  cellar 
represents  you,  and  we  will  wipe  you  off  the  face  of  the 
earth,"  to  use  his  exact  language.* 

In  the  early  days,  the  Bensinger  Cash  Register 
Company  was  one  of  the  principal  competitors 
of  the  National  Cash  Register  Company.  Mr. 
Bensmger,  its  president,  was  also  the  president 
of  the  Bnmswick-Balke-CoUender  Company. 
James  testified  that  the  Bensinger  people  were 
advised  that  if  they  continued  manufacturing 
their  registers  the  National  would  go  into  the 

» President  Patterson. 

"William  F.  McGraw,  record,  Patterson  v.  UnUed  States, 
cit.  supra,  Vol.  I,  pp.  423-25.  Counselman  confirmed  this  testi- 
mony, though  he  said,  "I  do  not  know  about  the  exact  words, 
about,  'the  face  of  the  earth'  but  they  were  to  that  eflFect"  (Lee 
Counsehnan,  ibid.,  pp.  401-2).  Chahners'  testimony  regarding 
the  incident  was  that  Patterson  told  McGraw  "that  it  would 
be  just  as  impossible  for  him  to  succeed  with  The  National  Cash 
Register  Company  as  it  would  be  possible  to  make  that  pepper 
thing  as  big  as  that  water  botUe"  (Hugh  Chalmers,  ibid,,  p.  479). 


Coercion,  Threats,  Intimidation        191 

billiard-table  business  or  else  would  represent 
some  billiard-table  company.  Mr.  Bensinger 
and  other  members  of  his  organization  were 
acquainted  with  this  fact  through  representa- 
tives of  the  National  Company.' 

In  1905  the  Union  Lock  Stitch  Company  was 
developing  a  so-called  straight-needle  machine 
and  also  a  curved-needle  machine.    Both  of 

'Henry  F.  James,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra,  Vol.  I,  pp.  52,  57-59. 

The  Lamson  Company  was  an  organization  manufacturing 
cash  carriers.  It  went  into  the  cash-register  business  but  still 
continued  the  manufacture  of  cash  carriers.  James  testified 
that  at  a  National  convention  it  was  stated  that  the  National 
"had  plenty  of  room  to  go  into  the  carrier  business,  and  if 
they  didn't  quit  making  cash  registers,  if  they  could  not  get 
them  out  of  business  without,  would  go  into  that"  (James,  ibid. 
pp.  73-74).  Also  in  the  remarks  of  the  president  of  the  National 
at  the  District  Managers'  Convention,  July  22  to  August  3, 1907, 
we  find  the  following  statement:  "We  will  say  the  same  thing 
to  the  adding  machine  people.  'You  stay  in  your  business  and 
let  the  cash-register  business  alone.'  We  do  not  know  whether 
or  not  we  will  go  into  it.  But  if  they  force  us  into  it,  we  are 
ready  to  do  so  and  will  go  into  it  with  both  feet,  too"  (Exhibit 
416,  beginning  p.  C9;  minutes  of  the  District  Managers'  Con- 
vention, ibid.,  pp.  201-9). 

In  contrast  to  the  Bensinger  case  above  there  is  nothing  in 
the  evidence,  so  far  as  the  writer  can  discover,  which  shows  that 
the  statements  just  referred  to  in  regard  to  the  Lamson  and 
adding  machine  companies  were  ever  made  outside  the  National 
Company  itself.  If  not,  it  would  seem  possible  to  question 
whether  they  are  to  be  regarded  as  either  intimidating  or  coer- 
cive, however  much  they  may  show  an  intention  to  monopolize 
the  business.  For  this  reason  they  have  been  placed  in  a  foot- 
note. 


i 


Ill 


192 


Unfair  Competition 


these  were  being  designed  and  produced  for 
use  in  connection  with  the  manufacture  of 
shoes  but  had  not  at  that  time  been  placed 
upon  the  market.  The  following  is  the  testi- 
mony of  Mr.  Merrick,  president  of  the  Union 
Lock  Stitch  Company,  with  reference  to  the 
conversation  which  he  had  with  President 
Winslow  of  the  United  Shoe  Machinery  Com- 
pany at  the  Hotel  Touraine: 

48.  Int.  Now,  will  you  please  be  good  enough  to 
state  the  substance  of  the  conversation  that  you  had 
with  Mr.  Winslow  at  that  time. 

Am.  We  were  shown  up  to  Mr.  Winslow's  room 
and  we  were  greeted  by  Mr.  Winslow  with:  "Well, 
boys,  what  is  your  proposition?"  I  told  him  that 
we  had  no  proposition  to  make.  He  expressed  sur- 
prise at  that,  saying  that  he  understood  that  we  had 
some  proposition  which  we  wished  to  make.  I  told 
him  no,  we  understood  that  he  wanted  to  make  a 
proposition.  There  seemed  to  be  a  mistake  all  around. 
And  with  that  Mr.  Winslow  began  to  attempt  to  per- 
suade us  to  seU  out  our  business. 

49.    Int.    Sell  out  to  whom  ? 

Ans.  Sell  out  to  the  United  Co.  We  told  Mr. 
Winslow  that  we  did  not  care  to  sell— that  the  propo- 
sition was  not  far  enough  developed  to  talk  of  seUing 
and  we  preferred  to  keep  it.  Mr.  Winslow  said: 
"How  much  money  have  you  got?"  I  told  him 
I  didn't  think  that  was  pertinent— it  didn't  make 
any  difference  how  much  money  we  had.  He  said: 
"  We  will  see  that  you  never  make  a  dollar."    I  told 


Coercion,  Threats,  Intimidation        193 

Mr.  Winslow  that  if  that  was  the  object  for  which  they 
were  in  business  they  might  succeed,  but  I  thought  it 
might  prove  expensive.  He  sa)rs:  "Why,  Merrick, 
you  can  see  that  we  couldn't  allow  you  to  make  any 
money."  We  talked  along  those  lines  for  quite  a  while. 
I  remember  I  asked  him  how  he  was  going  to  stop  us 
from  making  any  money.  "Well,"  says  he,  "we  will 
build  your  machines."  He  says:  "You  know  what 
we  did  to  Parsons  in  Marlboro.  We  wanted  to  buy 
him  out  and  he  wouldn't  sell,  and  we  built  his  machine 
and  you  know  what  became  of  him."  "Well,"  I  said, 
"Mr.  Winslow,  unless  you  change  your  methods  or 
change  your  men  not  in  a  thousand  years  will  you 
build  a  machine  that  would  interest  me."  So  finally 
we  agreed  to  disagree. 

50.  Int.  Was  that  all  that  was  said  at  that  con- 
ference ? 

Ans.  I  remember  Mr.  Winslow  said  he  sat  there 
at  the  head  of  the  table  like  a  banker,  and  eventually 
the  wheel  in  its  rotation  would  stop  in  front  of  him  with 
our  business,  and  he  would  take  it.' 

Little  or  nothing  need  be  said  regarding  acts 
of  this  character  when  employed  generally 
against  competitors  instead  of  as  supplementary 
to  other  unfair  methods.  Only  one  judgment 
can  be  passed  upon  them.    They  are  unfair. 

'  Frank  W.  Merrick,  brief  for  the  United  States,  Untied  States 
V.  United  Shoe  Machinery  Company,  pp.  338-40,  quoting  record, 
Vol.  Ill,  pp.  1146-47.  The  substance  of  this  testimony  was 
confirmed  by  C.  S.  Luitwieler  of  the  Union  Lock  Stitch  Com- 
pany, who  also  attended  the  conference.  Cf .  also  petition,  United 
Stales  V.  Bowser,  cit.  supra,  pp.  6-7. 


4\ 


H 


III  !i 


■•3 


W 


194 


Unfair  Competition 


Their  inevitable  tendency  as  well  as  their 
purpose  and  intent  is  to  prevent  competition 
regardless  of  efficiency.  It  may  be  doubted  if 
anyone  will  be  disposed  to  deny  that  it  is  both 
necessary  and  desirable  that  they  should  be 
eliminated  from  American  business  practice. 


bi 


CHAPTER  XI 
INTERFERENCE 

The  writer  has  used  the  term  "interference" 
to  designate  and  comprehend  those  practices 
whereby  one  organization  either  directly  or  in- 
directly molests  and  obstructs  a  competitor. 
The  variety  of  ways  in  which  this  may  be 
accomplished  is  almost  infinite,  and  it  is  the 
purpose  of  this  chapter  merely  to  indicate  a 
few  of  them. 

A.  An  organization  may,  for  example,  inter- 
fere directly  with  the  salesmen  of  an  organiza- 
tion endeavoring  to  make  a  sale. 

The  St.  Louis  Steel  Range  Company  is 
engaged  in  the  sale  of  stoves  throughout  a  con- 
siderable number  of  states,  and  its  agents  or 
salesmen,  carrying  samples  or  models,  travel 
from  the  city  of  St.  Louis  into  and  through  these 
states,  calling  upon  farmers  and  others  in  their 
houses  soliciting  and  securing  orders.  The 
Wrought  Iron  Range  Company  of  Missouri  is 
also  engaged  in  the  business  of  selling  ranges, 
and  its  salesmen  carry  with  them  a  full-sized 
stove  upon  a  specially  built  wagon.    It  is 

19s 


Ill 


Ififii 


196 


Unfair  Competition 


asserted  that  in  or  about  March,  1914,  the 
latter  company  inaugurated  a   campaign  of 
interference  against  the  former,  attemptmg  to 
prevent  and  to  hinder  the  sale  of  the  goods  of 
the  Steel  Range  Company.    According  to  the 
allegations  made  to  the  court,  the  Steel  Range 
Company's  men  were  followed  by  one  and 
sometimes  two  of  the  Wrought  Iron  Company's 
men,  who  in  some  cases  were  armed.    When- 
ever the  employees  of  the  Steel  Range  Com- 
pany attempted  or  undertook  to  converse  with 
a  farmer  or  other  prospective  purchaser,  the 
conversation  was  interrupted  by  the  employees 
of  the  Wrought  Iron  Company,  who  attempted 
to  dissuade  the  customer  from  purchasing  the 
St.   Louis   Company's  goods.    The   Wrought 
Iron  Company's  men  insisted  that  the  St.  Louis 
goods  were  worthless;    that  the  Steel  Range 
Company  conducted  a  fraudulent   business; 
that  the  farmer  or  other  purchaser  would  be 
cheated;  that  the  enamel  on  the  ranges  would 
scale,  chip,  crack,  and  fly  off,  and  that  the  stove 
would  never  be  deUvered,  etc.    In  certain  cases 
when  the  employees  of  the  Wrought  Iron  Com- 
pany  had   discovered    the    route   which    an 
employee  or  employees  of  the  St.  Louis  Com- 
pany intended  to  travel  the  next  day,  they 
would  precede  such  employee  or  employees, 


Interference 


197 


call  upon  prospective  buyers,  and  relate  similar 
stories.  Tactics  of  this  character,  it  was 
alleged  in  the  petition,  had  been  responsible 
for  the  elimination  of  more  than  thirteen  con- 
cerns from  this  line  of  business  in  the  course  of 
a  long  period  of  years,  beginning  as  far  back  as 
1888.^ 

Another  example  of  the  same  sort  of  com- 
petition may  be  found  in  the  case  of  a  cer- 
tain Spaulding,  who  manufactured  buggies 
and  wagons  which  he  was  accustomed  to  sell, 
through  itinerant  salesmen,  to  farmers  and 
others  in  the  state  of  Washington.  A  vol- 
untary association,  composed  principally  of 
persons  deahng  in  hardware  and  farming  im- 
plements, was  organized  in  that  state  for  the 
purpose  of  persuading  farmers  and  others  to 
limit  their  trade  to  intra-state  dealers,  and  this 
association  entered  upon  a  systematic  course 
of  interference  with  the  business  of  Spaulding. 
It  employed  one  man  and  frequently  two  to 
follow  each  of  his  agents.  These  men  stopped 
at  the  same  hotels  as  did  Spaulding's  agents, 

*  Petition,  St.  Louis  Steel  Range  Company  v.  Wrought  Iron 
Range  Company,  U.S.D.C.  for  the  Eastern  District  of  Missouri, 
Eastern  Division,  pp.  3-7.  Cf.  also  various  other  suits  for 
similar  practices  brought  against  Wrought  Iron  Range  Company, 
as  follows:  78  N.Y.  Supp.  11 14,  Sup.  Ct.  App.  Div.;  83  S.E.  693; 
86  Fed.  loio,  ion. 


, 


I 


I 


fi  ' 

If'    ^ 

1 

^Iv 

i 

I 

■■I 


I 


198 


Unfair  Competition 


started  when  they  started,  and  foUowed  them 
all  day  to  each  prospective  customer  in  order 
to  interfere  in  the  conversation  and  transac- 
tion. These  men  took  no  vehicles  with  them 
and  usually  did  not  offer  any  in  competition. 
Their  only  purpose  seemed  to  be  to  interfere 
with  and  prevent  any  sales  by  Spaulding's 
agents  by  means  of  interruptions,  reflections  on 
the  character  of  the  goods,  etc' 

B.  Another  method  of  interference  to  which 
an  organization  may  resort  is  to  induce  the 
breach  of  contracts,  sometimes  agreeing  to 
protect  violators  in  case  of  suit. 

The  National  Cash  Register  Company  has 
maintained  a  "  competition  department."  This 
department  had  an  active  head  who  was  assisted 
by  a  competition  committee,  which  consisted 
of  the  president  of  the  company,  general  man- 
ager, head  sales  manager,  foreign  manager,  su- 
perintendent of  the  factory,  and  a  few  others. 
In  addition,  the  competition  committee  had  at 
its  disposal  a  force  of  "competition  salesmen," 
which  force  varied  considerably  in  number 
from  time  to  time.^    These  men  were  known 

'  Emerson  v.  Spaulding,  150  Fed.  517.  The  decision  in  tliis 
case  enjoined  these  practices.  # 

"  Carl  G.  Heyne,  record,  State  v.  National  Cask  Register  Com- 
pany, cit.  supra.  Vol.  II,  pp.  908-9.  Heyne  testified  that  when 
he  first  became  identified  with  this  department  there  were  about 


Interference 


199 


by  various  names — "special  representatives," 
"district  instructors,"  "expert  men,"  "com- 
pany salesmen,"  "company  men,"  and  "knock- 
out men."' 

They  were  selected,  generally,  on  account  of  their 
ability  and  long  time  with  the  company;  usually  old 
men  were  selected  ....  because  they  were  more 
familiar  with  the  Company's  methods  and  under- 
stood the  selling  business  better." 

Usually  they  were  entirely  distinct  from  the 
men  who  worked  under  the  sales  department, 
and  they  were  also,  as  a  rule,  on  the  pay-roll 
of  the  competition  department.  In  some  in- 
stances, however,  the  special  men  did  work  for 
both  the  sales  and  competition  departments, 
in  which  cases  they  were  paid  by  both  depart- 
ments.3 

Many  of  the  duties  and  acts  of  special  men 
were  entirely  legitimate  and  could  not  be 
regarded  as  in  any  sense  unfair.  According 
to  Warren's  testimony  in  the  federal  suit,  "they 

twenty-six  of  these  men.  Other  testimony,  however,  would  lead 
to  the  view  that  this  was  about  a  maximum  and  that  the  number 
was  very  often,  if  not  generally,  much  smaller  than  this  estimate. 

'Lee  Counselman,  ibid.,  Vol.  I,  p.  571;  Robert  Patterson, 
ibid..  Vol.  Ill,  p.  1735;  Carl  G.  Heyne,  ibid.,  Vol.  II,  p.  909. 

■  Robert  Patterson,  ibid.,  Vol.  Ill,  p.  1735. 

*  J.  E.  Warren,  record,  Patterson  v.  United  States,  cit.  supra. 
Vol.  I,  pp.  126-27. 


f 
I 


II 


11" 


W' 


ithu 


4 


ffi 


200 


Unfair  Competition 


were  merely  expert  salesmen,  who  went  to 
assist  the  regular  agents  in  cases  of  severe  com- 
petition or  where  the  regular  men  were  expe- 
riencing difficulty  in  making  a  sale/'*  These 
men  received  special  instructions  on  the  differ- 
ent lines  of  machines  and  were  educated  as  to 
their  mechanical  construction  before  they  were 
put  on  such  assigned  work.  They  were  not 
necessarily  selected  for  these  duties  because 
they  possessed  more  knowledge  of  the  mechan- 
ism of  the  machines  than  the  ordinary  sales- 
man, but  because  they  were  experts  in  selling 
and  demonstrating.' 

Notwithstanding  their  apparent  and  alleged 
legitimacy  of  purpose  and  character,  there  is  a 
considerable  amount  of  evidence  to  show  defi- 
nite interference  with  the  contracts  of  competi- 
tors on  the  part  of  special  men  as  well  as  regular 
salesmen.  Heyne  gave  testimony  regarding 
the  situation  during  the  Hallwood  fight: 

A .    The  agents  of  The  National  Cash  Register  Com 
pany,  regular  and  special,  were  instructed  to  'nfonn 
purchasers  and  users  of  the  Hallwood  registers  ihat 
the  registers  they  had  purchased  were  defective  and 
infringed  The  National  Cash  Register  Company's  pat- 

'  J.  E.  Warren,  record,  Patterson  v.  UnUed  States,  cit.  suPra 
Vol.  I,  pp.  157-58.  "^    ' 

\Ibid.,  pp.  164-65. 


Interference 


20I 


ents;  and  that  if  they  were  m  the  merchant's  place 
they  would  either  not  accept  the  register,  in  the  case 
of  purchasers  to  whom  the  registers  had  not  been 
delivered,  and  in  case  of  users,  that  they  would,  if  they 
were  in  the  place  of  the  merchant,  return  the  register 
to  the  manufacturer  without  further  payment. 

Q.  Do  you  know  whether  or  not  registers  were 
returned  .  •  .  ,? 

A,  I  do  not  know  any  registers  were  returned,  but 
I  do  know  that  users  of  Hallwood  registers  refused  to 
make  further  payments  on  their  registers ,  which  resulted 
in  their  being  sued  in  several  cases. 

Q.  Do  you  know  whether  or  not  the  National 
Cash  Register  Company  employed  attorneys  to  defend 
suits  against  purchasers  of  competing  machines  ? 

A,  They  did  not  employ  them  openly,  but  they 
paid  them  in  several  cases  of  which  I  know. 

Q.  Do  you  recall  any  particular  cases  or  any  par- 
ticular attorneys  that  were  employed  or  that  were 
paid  by  the  National  Company  for  that  purpose  ? 

-4.    I  recall  the  name  of  one. 

Q.    Who  was  that  ? 

A,    A  Mr.  Mathias  of  Chicago.* 

Warren  testified  regarding  his  work  as  a 
special  man  on  the  Hallwood  competition  as 
follows: 

Q.    Did  you  during  that  year  call  on  people  that 
had  aheady  purchased  a  competing  machine  ? 
A,    Yes. 

'  Carl  G.  Heyne,  record,  State  v.  National  Cash  Register  Com- 
pany, ctt.  supra,  Vol.  II,  pp.  1002-3.    AU  itaUcs  are  the  writer's. 


/ 


/ 


I 


1  ' 

f  ■ 

III 


m\ 


- 11/ 


202 


Unfair  Competition 


Q.  You  say  that  you  undertook  to  convince  them 
that  they  had  bought  inferior  machines  ? 

A.    Yes. 

Q.    Why  did  you  do  that  ? 

A»    Because  I  wanted  to  sell  them  a  National. 

Q.  Why  did  you  want  to  sell  them  a  National  so 
long  as  they  already  had  one  of  another  make  ? 

A.    Because  we  wanted  theh:  business. 

Q,  And  supposing  that  they  had  contracted  to 
purchase  a  competmg  machine  and  hadn't  paid  for  it 
yet,  what  would  you  do  about  that  ? 

A.    Send  it  back  anyway. 

Q,    What  would  you  do  about  the  portion  of  pur- 
chase price  that  the  purchaser  had  aheady  paid  ? 
•       ••*••••...., 

A,  I  gave  him  credit  for  it  on  his  purchase  of  the 
National.' 

Q,  And  what  would  you  do  about  the  contract  that 
he  had  with  the  other  company  ? 

A,    It  would  be  left  up  to  him  m  most  cases. 

Q,    Was  it  in  all  cases  ? 

A,    No,  we  protected  them  in  some  cases. 

« In  these  cases  "Services  to  be  rendered"  was  written  on  the 
contract.  The  term  was  explained  by  Counsehnan:  "Well,  if 
a  man  owned  a  Hallwood  cash  register  and  he  had  paid  $50  on 
it,  and  he  was  sold  a  National  cash  register  at  $200,  to  keep  him 
from  losing  that  $50  he  had  paid  ....  it  was  considered  'Ser- 
vices to  be  Rendered 'and  he  only  had  to  pay  $150 I  never 

knew  what  the  services  were.  It  was  just  a  certain  way  of  giving 
him  the  benefit  of  $50,  which  he  had  aheady  paid  "—Lee  Coun- 
sehnan, record,  Patterson  v.  UniUd  States,  cU.  supra,  Vol  I, 
p.  414. 


Interference 


203 


Q.  State  whether  or  not  you  ever  did  agree  with 
the  purchasers  of  competing  machines  to  protect  them 
on  their  contract  with  the  competing  company? 

A.    We  did. 

•       •••••......, 

Q.  State  whether  or  not  that  was  with  the  sanc- 
tion of  the  National  Cash  Register  Company,  your 
employers. 

A,  It  was  at  the  time,  that  is,  imtil  we  were  later 
advised  by  our  attorneys  to  stop  doing  it.' 

^  C.  The  business  of  competitors  may  likewise 
be  interfered  with  and  much  difficulty  and 
trouble  created  by  lawsuits.  In  the  Michigan 
suit  against  the  National  Cash  Register  Com- 
pany Robert  Patterson  testified  that  he  did 
not  recall  that  there  was  ever  a  cash  register 
made  which  the  National  did  not  allege  in- 
fringed its  patents.*    Heyne  testified: 

It  was  the  established  poUcy  as  laid  down  by 
the  president  of  The  National  Cash  Register  Com- 
pany, and  the  statement  he  made  to  me,  to  bring  as 
many  suits  as  possible  against  the  competitors  be- 
cause it  would  financially  embarrass  them  and  their 

'  J.  E.  Warren,  record,  State  v.  National  Cash  Register  Com- 
pany, cit.  supra,  Vol.  I,  pp.  421-22.  Cf.  also  petition  United 
States  V.  Bowser,  cit.  supra,  pp.  6-7,  and  petition,  United  States  v. 
Central  West  Publishing  Company,  cit.  supra,  p.  14.  ItaUcs  are 
the  writer's. 

» Robert  Patterson,  record,  State  v.  National  Cash  Register 
Company,  cit.  supra,  Vol.  Ill,  p.  1856. 


;•■» 


i! 


'  w 


204 


Unfair  Competition 


stockholders  and  if  they  lost,  to  appeal;  this  policy 
he  expressed  in  his  pubUc  report  which  was  sent  out 
to  stockholders  m  1906;  it  was  promiscuously  sent  to 
various  people;  he  always  expressed  it. 

Q.  State  whether  or  not  it  was  the  policy  of  the 
National  Company  to  bring  suits  against  a  competitor 
as  a  preUminary  to  buying  them  out  or  attempting 
to  buy  them  out. 

A,  Yes,  because  the  dismissal  of  such  a  suit  could 
always  be  made  part  consideration  of  tiie  purchase 
price.' 

In  spite  of  this  last  testimony  there  is  much 
evidence  to  show  that  aU  the  National  infringe- 
ment suits  were  suits  brought  in  good  faith. 
Mr.  Muzzy,  of  the  patent  department,  testified: 

I  do  not  know  of  any  instances  where  suits  were 
brought  witiiout  first  securing  tiie  opinions  of  the 
different  attorneys  employed  by  the  company  in  regard 
to  such  mfringement;  and  I  further  do  not  know  of 
any  suits  being  brought  where  these  opinions  of  the 
attorneys  reported  no  infringement.^ 

However  true  it  may  have  been  in  all  cases 
where  infringement  suits  were  brought  that  it 
was  believed  that  there  was  actual  infrmge- 
ment,  this  fact  would  scarcely  seem  to  justify 

« Carl  G.  Heyne,  record,  StaU  v.  National  Cash  Register  Com- 
pany, cit,  supra,  Vol  II,  p.  936. 

»  W.  H.  Muzzy,  ibid.,  Vol.  Ill,  p.  2154. 


Interference 


205 


the  multiplicity  of  suits  which  were  instituted 
by  the  National.     In  the  case  of  the  Hallwood 
and  its  successor  companies,  besides  several  suits 
brought  by  the  National  for  patent  infringe- 
ment, a  large  number  of  suits   were  entered 
against  dealers  and  users.^    F.  C.  Osbom,  at 
one  time  of  the  Osbom  Cash  Register  Com- 
pany, testified  that  the  National  started  one 
suit  against  that  company  for  patent  infringe- 
ment and  about  thirty-one  or  thirty-two  suits 
against   users.     In  this  case  the  courts  were 
asked  for  an  injunction  restraining  the  National 
from  prosecuting  the  suits  against  users.    The 
judge  intimated  in  a  statement  that  unless  a 
stipulation  or  agreement  of  some  sort  were 
entered  into  by  which  a  stay  of  proceedings 
would  be  had  in  the  prosecution  of  subsidiary 
suits  until  the  main  suit  was  decided,  he  would 
be  inclined  to  grant  the  injunction.' 

There  is  also  some  testimony  to  the  effect 
that  the  National  definitely  traded  on  the 
infringement  suits  which  it  brought. 

Q.  Do  you  know  what  its  policy  was  relative  to 
the  commencement  of  suits  against  users  of  competitive 

^Ibid.,p,  2155. 

'  F.  C.  Osbom,  ibid.,  Vol.  II,  pp.  862, 87i-72,and  also  in  record, 
Patterson  v.  United  States,  cit.  supra.  Vol.  I,  p.  436.  Sometimes 
the  initials  of  Osbom  are  given  as  F.  C,  at  other  times  as  F.  E. 


r 


m 


^1 


i 


i 


206 


Unfair  Competition 


machines  because  of  alleged  infringements  of  patents 
of  the  National  Company  ? 

A,  We  all  received  notice  from  the  Company  to 
state  to  a  probable  purchaser  of  a  competing  machine, 
or  those  who  had  already  purchased  competing  ma- 
chines, either  to  delay  the  purchase  of  the  competing 
machine  and  put  them  off  thereby,  and  also  to  those 
who  had  already  purchased,  stating  that  they  didn't 
have  a  clear  title  and  not  to  meddle  with  any  competmg 
machine — that  there  was  a  chance  of  a  lawsuit. 

Q.  That  is,  that  was  the  notice  you  gave  to  the 
purchaser  ? 

A»     X  es. 

^.    Or  an  intending  purchaser  of  a  competing 
machine  ? 
A,    Yes.« 

D.  The  United  Shoe  Machinery  Company, 
or  rather  its  agent,  appears  to  have  attempted 
to  interfere  with  the  operation  of  a  competitor 
by  fomenting  a  strike  in  his  plant. 

In  May,  1910,  Thomas  G.  Plant,  having  per- 
fected a  line  of  machines  designed  to  perform 
all  the  processes  in  the  manufacture  of  shoes, 
discontinued  the  use  of  United  machines  and 
installed  the  Plant  machines  in  place  of  them. 
Frank  Morrison,  at  that  time  employed  in  the 
Plant  factory,  testified  that  in  June  the  follow- 

« Henry  F.  James,  record,  State  v.  National  Cash  Register 
Company,  cU.  supra,  Vol  I,  pp.  224-25. 


Interference 


207 


ing  conversation  took  place  between  himself 
and  Mr.  Willson  of  the  United  Shoe  Machinery 
Company: 

16.  Int.  State  the  conversation  you  had  with 
Mr.  Willson,  the  first  conversation. 

Ans.  First,  I  seen  him  alone.  We  had  some 
trouble  in  there  and  he  said:  "Why  don't  you  go  out 
on  a  strike?"  He  says:  *'We  will  back  you."  I  says: 
**It  can't  be  done,  because  we  give  Mr.  Plant  a  month 
of  time  to  fix  the  matter  up  with  us."  Then  he 
said:  "Come  see  me  when  you  are  through  with  it." 
The  month  was  up  and  we  had  one  meeting.  The 
day  before  that  somebody  told  Mr.  Plant  what  was 
going  on.  Then  the  next  morning  they  refused  us  to 
go  in.  Then  we  went  down  to  see  Mr.  Willson,  us 
three,  Mr.  Ross  and  Sochat  and  I.  Then  he  wanted 
us  to  start  an  organization. 

17.  Int.  State  what  took  place  between  you  and 
Mr.  Willson  and  these  other  gentlemen  at  the  second 
meeting.  Was  there  any  proposition  made  to  you 
by  Mr.  Willson  ? 

Ans.  Yes.  Me  alone,  you  mean?  Mr.  Willson's 
offer  was  that  if  we  organize  the  place  and  get  him  all 
the  information  we  could  for  so  and  so  machine,  we 
turn  him  in  how  many  work  they  do  on  each  machine 
every  day  so  and  so,  he  will  pay  us  $2,000  cash  and 
pay  our  expenses  and  he  will  see  we  get  a  job  too. 
That  was  between  us  three.  Mr.  Willson  was  the 
fourth. 

20.  Int.    Did  you  unionize  the  Plant  factory  ? 
Ans.    Well,  we  tried  to,  but  we  failed  later. 


'  ■  f 


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^ 


l|f 


208 


Unfair  Competition 


21.  Int.    YoufaUed? 

Ans.    Later  on;    we  didn't  have  no  more  money 
to  use. 

22.  Int.    How  many  members  did  you  finally  get 
into  the  union  ? 

Ans.    I  think  we  had  near  300. 

23.  Int.    Three  hundred  ? 

Ans.  Pretty  near  300.  Mr.  Ross  he  told  me  it 
was  coming  up  to  300.    He  was  keeping  the  books. 

24.  Int.  Did  you  make  any  reports  to  Mr.  Willson 
about  the  conditions  in  the  Plant  factory  ? 

Ans.  Two  or  three  times  a  week;  sometimes  three 
of  us,  sometimes  all  of  us. 

25.  Int.  Well,  what  reports  did  you  make  to  Mr. 
Willson? 

Putnam,  J.    About  what  ? 

Mr.  Gregg.  About  the  conditions  in  the  Plant 
factory;  the  progress  they  were  making  with  the  union. 

Ans.    Yes.    We  used  to  tell  him  we  got  so  many 

members He  says;    '*Go  ahead,  keep  up"— 

he  always  told  us. 

26.  Int.    Told  you  what  ? 

Ans.  Always  told  us  to  keep  up  organizing,  do 
our  best  to  get  an  organization  in  there.  He  says: 
"It  will  be  better  for  you  by  and  by." 

34.  Int.    How  many  conferences  did  you  have  with 
Mr.  Willson  in  regard  to  this  matter  ? 
Ans.    About  organization  ? 
3$.  Int.    Yes. 

Ans.    Well,  we  have  been  there  severals  of  times. 
Brown,  J.    How  many  times  ? 
The  Witness.    I  couldn't  tell  you. 


Interference 


209 


Brown,  J.    To  the  best  of  your  ability. 

The  Witness.  Two  or  three  times  a  week  for 
about  two  months*  time. 

Brown,  J.    How  many  times  ? 

The  Witness.  We  have  been  there  about  two  or 
three  times  a  week. 

Brown,  J.    For  two  months  ? 

The  Witness.    For  two  months.* 

E.  A  highly  original  method  of  interfer- 
ence has  also  appeared  in  the  lumber  trade. 
This  has  consisted  of  an  organized  campaign 
of  securmg  from  lumber  mail-order  houses 
catalogues  and  specifications  by  the  wholesale, 
thereby  increasing  heavily  the  overhead  ex- 
penses of  such  establishments.  The  manner 
in  which  this  campaign  has  been  carried  on  is 
shown  by  the  publications  known  as  the  Black 
Book  and  the  White  Book.  The  following 
extract  from  the  Black  Book  illustrates  the 
system: 

It  is  beyond  doubt  that  the  greatest  menace  to  the 
lumber  business  to-day  is  the  competition  of  the  mail- 
order houses,  which  has  wrought  such  havoc  in  the 
ranks  of  the  small  merchants  throughout  the  country. 

*  Brief  for  the  United  States,  United  States  v.  United  Shoe 
Machinery  Company,  pp.  353-56,  quoting  record,  Vol.  IV,  pp. 
1702  flf.  The  testimony  of  both  C.  G.  Ross  and  Abram  Sochat 
confirmed  that  of  Morrison.  Ross  brought  suit  against  the 
United  Co.  and  the  Willson  estate  to  recover  the  amounts 
expended  in  accordance  with  their  arrangements  with  Willson. 


m 


'»: 


17 


II 


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IP 


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2IO 


Unfair  Competition 


In  order  to  successfully  compete  with  them,  it  is 
necessary  for  every  dealer  to  keep  in  close  touch  with 
them  and  know  what  prices  they  are  quoting  to  his 
customers.  To  accomplish  this,  the  following  line  of 
action  should  be  persistently,  faithjullyy  and  syste- 
matically carried  out. 

GET  PRICES  AND  CATALOGUES 

Seciu-e  from  Gordon  Van  Tine  Company  at  least 
two  catalogues  per  week,  using  your  own  name  and 
also  that  of  other  members  of  your  family,  employees, 
friendly  contractors,  and  merchants,  but  never  use 
a  fictitious  name.  By  using  care  each  name  will  answer 
for  five  communications. 

1.  Send  for  catalog  in  response  to  ad. 

2.  Send  list  of  material  for  estimate. 

3.  Send  letter  asking  questions  requiring  special  re- 
ply, remembering  that  all  your  letters  will  be  answered 
by  printed  replies  if  the  labor  of  writing  a  special  reply 
can  be  avoided. 

4.  Send  for  samples  of  roofing. 

5.  Send  for  paint  color  card.' 

As  to  the  effect  of  these  campaigns,  Vice- 
President  Scott,  of  the  Gordon-Van  Tine  Com- 
pany, testified: 

We  continued  to  sell  the  consvmiers  and  were 
harassed  by  the  dealers  generally,  and  suffered  a  loss 
in  money  which  was  occasioned  by  the  action  of  a 

« Brief  for  the  United  States,  United  States  v.  HoUis,  cit. 
supra,  p.  69,  quoting  record,  Vol.  VIII,  Exhibit  162,  p.  i.  Italics 
those  of  brief. 


Interference 


2X1 


campaign  which  was  instituted  and  carried  on  by  the 
lumber  dealers  in  general.  This  campaign  consisted 
of  a  general  organized  efort  on  the  part  of  the  dealers 
to  get  our  catalogues  by  the  wholesale.  They  were 
expensive;  it  cost  money  to  mail  them.  They  were 
counterfeit  or  phony  requests  which  increased  our 
overhead  cost,  mcreased  our  clerical  cost  and  mail 
cost,  and  in  1907  it  cost  us  fully  $25,000/ 

The  testimony  of  Thompson,  manager  of  the 
building-material  department  of  Montgomery 
Ward  &  Company,  as  to  the  effect  of  this 
scheme  is  of  a  similar  nature: 

We  were  interfered  with  by  what  I  would  call 
fake  estimates,  increasing  the  expense  of  our  estimating 
department.  The  building  material  department  was 
flooded  with  these  estimates.  This  practice  was  pur- 
sued during  the  years  1908,  1909,  and  1910." 

That  the  direct  interference  with  the  sales- 
men of  a  competitor,  as  has  been  illustrated  in 
this  chapter,  is  unfair,  it  requires  no  argument  to 
prove.  It  is  absolutely  opposed  to  a  competi- 
tion of  productive  and /or  selling  eflSciency. 
Nor  is  deUberate  interference  with  the  contracts 
of  competitors  any  less  unsound  economically. 

'  Brief  for  United  States,  United  States  v.  Hollis,  cit.  supra, 
p.  70,  quoting  pet.  tes.,  Vol.  II,  pp.  lo-ii,  appendix  to  brief, 
p.  94.    Italics  those  of  brief. 

*  Brief,  ibid.,  pp.  70-71,  quoting  pet.  tes.,  Vol.  II,  pp.  317-18, 
appendix  to  brief,  p.  142.    ItaUcs  those  of  brief. 


I. 


wm 


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212 


Unfair  Competition 


An  interference  with  the  business  of  competi- 
tors through  harassing  lawsuits  stands  on  the 
same  basis  as  interference  with  contracts  or 
with  competing  salesmen.  As  Judge  Quarles 
well  stated  in  an  injunction  proceeding  growing 
out  of  a  multiplicity  of  suits  a  patentee  may: 

brmg  a  multipUcity  of  suits  for  the  purpose  of  harass- 
ing and  annoying  a  rival  manufacturer,  for  the  pur- 
pose of  subjecting  him  to  burdensome  expense,  and 
to  destroy  his  business  by  exciting  terror  among  his 

customers Instances  are   not  wanting  where 

patentees  make  illicit  use  of  the  courts  as  instru- 
mentalities of  oppression;  bring  a  multiplicity  of  suits, 
purposely  scattered  through  the  circuits,  not  for  the 
honest  purpose  of  securmg  an  adjudication  in  support 
of  the  patent,  but  to  crush  a  rival  manufacturer  by 
creating  a  stampede  among  his  customers;  alarming 
them  by  circulars  breathing  threats  of  prosecution, 
denouncing  the  product  of  the  rival  concern  as  an 
infringing  device  .  .  .  .  » 

A  similar  sort  of  judgment  must  be  passed 
upon  such  interferences*  as  those  testified  to  in 

'  District  Judge  Quarles  in  Commerical  Acetylene  Gas  Com- 
pany V.  Avery  Portable  Lamp  Company,  152  Fed.  642. 

»It  is  probably  unnecessary  to  add  that  numerous  other 
analogous  practices  may  be  used.  Some  of  such  other  methods 
are  alleged  in  the  case  of  United  States  v.  Bowser  (original  peti- 
tion, U.S.D.C.  for  the  District  of  Indiana,  pp.  5-7).  S.  F. 
Bowser  &  Company  are  engaged,  in  common  with  some  twenty- 
five  or  thirty  other  organizations,  in  the  manufacture  of  under- 
ground storage  outfits  for  the  safe  storage  and  handUng  of 
gasoline  and  similar  inflammable  liquids.    The  great  increase  in 


Interference 


213 


the  Shoe  Machinery  case  and  related  in  the 
illustration  from  the  lumber  trade. 

the  number  of  motor-driven  vehicles  has  in  many  cases  resulted 
in  cities  and  towns  requiring  proper  storage  faciUties  for  imflam- 
mable  liquids  in  order  that  property  and  life  may  be  properly 
safeguarded. 

The  ordinary  type  of  underground  storage  outfit  consists 
of  a  steel  tank  placed  underground  and  a  pump  connected  thereto 
to  raise  the  contents.  Certain  other  outfits  of  a  similar  character 
are  also  manufactured. 

Among  other  things  the  government  charged  the  Bowser 
Company  with: 

"i.  Making  and  causing  to  be  made  to  customers  and  pros- 
pective customers  of  competition,  [sic]  and  other  persons,  false 
representations  concerning  the  standing,  financial  and  otherwise, 
of  said  competitors,  the  quality  of  the  pumps,  tanks  and  outfits 
manufactured  by  them,  and  the  ability  of  such  pumps,  tanks  and 
outfits  to  meet  the  requirements  of  the  National  Board  of  Fire 
Underwriters. 

"3.  Bribmg  or  employing  architects,  fire  marshals,  insurance 
agents,  or  municipal  oflficers  and  other  persons  to  use  their  influ- 
ence ....  in  preventing  the  sale  of  the  products  of  competitors. 

"4.  Preparing  and  furnishing  to  and  urging  the  adoption  by 
municipalities  of  certain  forms  of  ordinances  respecting  the 
storage  or  handling  of  inflammable  liquids,  wherein  the  use  of 
the  pumps,  tanks  and  outfits  manufactured  by  competitors  was 
prohibited,  or  the  sale  thereof  interfered  with. 

"10.  Inducing  and  hiring  salesmen,  agents  and  employees 
of  competitors  to  leave  their  employment  and  enter  the  employ- 
ment of  the  defendants." 

Three  of  these  practices,  i,  3,  and  10,  were  enjoined  in  the 
consent  decree  of  the  court.  Disparagement  and  misrepre- 
sentation have  not  been  dealt  with  by  the  writer.  For  discus- 
sions of  these  cases  cf.  Report  of  Commissioner  of  Corporations, 
Trust  Laws,  and  Unfair  Competition,  chap,  vii 


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CHAPTER  XII 

MANIPULATION 

The  word  "manipulation"  has  been  used  to 
indicate  certain  practices  and  methods  which 
cannot  be  satisfactorily  defined  and  which  do 
not  lend  themselves  to  inclusion  under  any  of 
the  classes  already  discussed. 

It  was  asserted  that  when  the  Naval  Stores 
Export  Company  began  business  and  had 
accumulated  a  considerable  quantity  of  resin 
and  spirits  of  turpentine,  the  formerly  existing 
Naval  Stores  Combination  inaugurated  a  fierce 
trade  warfare  against  it.  At  the  time  much  of 
the  stock  of  naval  stores  belonging  to  the  Export 
Company  was  hypothecated  with  the  banks. 
By  manipulation  the  Naval  Stores  Combination 
then  caused  the  Savannah  market  for  turpen- 
tine to  decUne  some  30  per  cent  within  a  period 
of  two  weeks.  The  Export  Company  was 
requested  to  furnish  additional  margins.  As 
it  was  unable  to  do  so,  it  was  forced  to  sell  out 
its  accumulated  supplies  at  losses  which  nearly 
exhausted  its  capital  stock.^ 

'  Petition  in  equity,  United  Stales  v.  American  Naval  Stores 
Company,  U.S.D.C.  for  the  Eastern  Division  of  the  Southern 
District  of  Georgia,  pp.  11-12. 

214 


Manipulation 


21S 


The  case  of  the  Pennsylvania  Sugar  Refining 
Company  is  familiar  to  many.  Some  years 
ago  Adolph  Segal  began  the  construction  of 
a  sugar  refinery  in  the  city  of  Philadelphia. 
During  the  process  of  construction,  and  while 
Mr.  Segal  was  hard  pressed  for  cash,  he  was 
offered  a  loan  by  one  Gustav  E.  Kissel,  a  broker 
for  an  undisclosed  principal.  The  offer  was 
accepted  and,  in  return  for  the  loan,  a  majority 
of  the  stock  of  the  refinery  company  and  all  its 
bonds  were  deposited  with  Kissel.  At  the 
same  time  written  authority  was  given  him  to 
exercise  the  voting  power  of  the  stock."  The 
undisclosed  principal  was  in  fact  the  American 
Sugar  Refining  Company,  and  a  few  days  after 
these  arrangements  were  completed.  Kissel 
attended  a  meeting  of  the  board  of  directors  of 
the  Pennsylvania  Refining  Company,  causing 
four  of  the  seven  directors  to  resign  and  himself 
and  three  others  subject  to  his  control  to  be 
elected  to  fill  the  vacancies.  The  majority  of 
the  board  then  adopted  and  spread  upon  the 
minutes  of  the  company  the  following  declara- 
tion: ''Resolved,  That  the  refinery  do  not  run 
and  that  no  proceeding  looking  to  the  beginning 

»  Cf.  agreement  between  Segal  and  Kissel,  December  30, 1903, 
Exhibit  L,  petition,  United  States  v.  American  Sugar  Refining 
Company f  cU.  supra,  pp.  213  ff. 


I 


3l6 


Unfair  Competition 


of  operation  be  taken  until  the  further  order 
of  the  Board."" 

It  has  also  been  charged  that  the  Aluminum 
Company  of  America  delayed  the  forwarding 
of  bills  of  lading  and  abrupUy  ceased  shipping 
aluminum  metal  to  concerns  competing  in  the 
manufacture  of  aluminum-finished  goods  with- 
out giving  any  warning  of  its  intention.  In 
this  way  independents  were  hampered  and 
prevented  from  filling  their  orders.' 

'Quoted  from  resolution  dted  in  petition,  United  States 
V.  American  Sugar  Refining  Company^  cit.  supra,  p.  87.  Cf.  for 
further  details,  Hearings  on  the  Investigation  of  the  American 
Sugar  Refining  Company,  62d  Cong,  ist  sess.,  1910-11,  Vol.  II, 
pp.  1276-85. 

•  Petition,  United  States  v.  Aluminum  Company  of  America, 
cit.  supra,  p.  23.  The  Aluminum  Company  was  in  the  position 
to  do  this  because  of  its  large  control  of  bauxite  fields  discussed 
in  chap  viii. 


CHAPTER  XIII 
CONCLUSION 

This  study  with  its  twelvefold  classification 
by  no  means  pretends  to  comprehend  all  of  the 
unfair  methods  which  have  been  and  are  being 
employed  by  various  organizations.  It  has 
endeavored  merely  to  illustrate  and  explain 
a  number  of  these  methods  and  to  indicate 
some  of  the  reasons  for  regarding  them  as  un- 
economic and  hence  as  imfair.  Such  a  review 
naturally  renders  pertinent  some  consideration 
of  the  relation  of  these  methods  to  the  trust 
problem  in  the  United  States. 

Many  reasons  have  been  advanced  to  account 
for  the  phenomenon  of  trust  development. 
Among  these  explanations  one  of  the  most  gen- 
erally accepted  is  that  which  may  be  termed 
the  competition  theory  of  monopoly.  This 
theory  holds,  in  brief,  that  the  normal  and 
possibly  inevitable  economic  tendency  of  com- 
petitive business  is  the  creation  of  monopoly. 
The  development  of  large-scale  production 
with  its  attendant  advantages  necessarily  cre- 
ates larger  and  larger  business  units.    These 

217 


I 


n 


m\ 


218 


Unfair  Competition 


units  are  capable  of  supplying  a  proportion- 
ately larger  number  of  consumers.  Sooner 
or  later  they  come  into  conflict  with  one 
another;  intense  competition  ensues,  and  in 
consequence  the  margin  of  profit  rapidly  nar- 
rows. Each  competing  concern  strives  by 
increasing  its  scale  of  production  to  effect  sub- 
stantial economies  and  reductions  in  unit  costs, 
thus  enabling  it  to  sell  its  increasing  volume  of 
output  at  a  lower  and  lower  price,  compensating 
itself  for  the  ever-narrowing  margin  of  profit 
per  imit  by  an  ever-increasing  volume  of  sales. 
The  advocates  of  this  theory  assert  that  under 
these  circimistances  one  of  two  results  becomes 
inevitable:  either  these  competing  concerns 
will  combine  or  else  marginal  concerns  will  be 
eliminated  until  a  monopolistic  condition  en- 
sues. In  either  event  the  outcome  is  the  same 
— ^monopoly. 

This  theory  has  been  enunciated  by  several 
writers  and  is  set  forth  by  the  German  authority, 
Professor  Liefmann,  as  follows: 

The  conceivable  maximum  satisfaction  of  wants 
will  be  reached  when,  in  each  branch  of  industry,  the 
cheapest  sellers  supply  the  total  demand.  To  bring 
this  about  is,  after  all,  a  final  aim  of  free  compe- 
tition. It  enables  new  enterprises  to  be  established 
as  soon  as  someone  beUeves  that  he  can  sell  cheaper 
than  at  least  a  part  of  the  sellers  then  in  the  market. 


Conclusion 


219 


But  since  as  a  rule,  a  single  seller  is  the  cheapest,  or 
only  a  very  few,  who  under  competition  secure  differ- 
ential gains,  i.e.,  enterpriser's  profits,  competition  has 
the  tendency,  when  pushed  to  its  limit,  to  destroy  itself 
and  to  he  turned  into  monopoly.  Since  the  cheapest 
seller  can  often  lower  costs  by  producing  the  whole 
supply,  it  follows  that  the  maximum  satisfaction  of 
wants  is  obtained  when  there  is  only  one  seller, 
competition  remaining  latent  in  the  background,  effective 
only  when  the  seller  does  not  employ  the  most  efficient 
methods  of  production,  or  when  as  a  monopolist  he 
appropriates  a  profit  much  above  the  economic  mar- 
ginal return.' 

In  Professor  Liefmann's  statement  of  the 
competition  theory  of  monopoly  two  things  are 
at  once  apparent.  In  the  first  place,  it  takes 
no  cognizance  of  unfair  competition.  It  pre- 
supposes fair  competition,  i.e.,  that  competition 
is  conducted  upon  the  basis  of  efficiency,  the 
business  being  obtained  by  the  cheapest  seller 
or  sellers.  Secondly,  Professor  Liefmann  ex- 
pressly admits  that  the  competition  theory 
represents  only  a  tendency. 

In  regard  to  the  first  point,  the  belief  may 
be  expressed  that  this  study  has  demonstrated 
that  it  is  most  fallacious  to  assume  that  business 
in  the  United  States  has  been  conducted  upon 

« Robert  Liefmann,  "Monopoly  or  Competition  as  the  Basis 
of  a  Gk)vernment  Trust  Policy,"  Qtmrterly  Journal  of  Economics y 
XXIX  (February,  19 15),  314-15.    Italics  are  those  of  the  writer. 


Ui 


220 


Unfair  Competition 


Conclusion 


221 


■ 


'f  I 


a  basis  of  fair  competition.  If  anything,  the 
contrary  has  been  the  case  in  a  large  propor- 
tion of  instances.  In  attempting,  therefore, 
to  deal  with  trusts  and  monopolies  in  the 
United  States,  the  problem  differs  from  what 
it  might  be  were  unfair  methods  absent.  As 
it  is,  unfair  competition  in  this  country  has  so 
beclouded  the  issue  between  fair  competition 
on  the  one  hand  and  monopoly  on  the  other 
that  it  is  practically  impossible  today  to  deter- 
mine to  what  extent  monopolies  and  trusts  are 
logical  and  necessary  results  of  the  competition 
theory.  We  have  no  means  of  ascertaining  at 
the  present  time  to  what  extent  large  monopo- 
listic units  or  organizations  are  due  to  superior 
productive  and  selling  efficiency  and  to  what 
extent  they  may  have  been  the  result  of  imf air 
practices.  In  many  cases  competition  has  not 
had  the  opportunity  to  operate  freely  in  indus- 
tries in  which  such  organizations  exist,  and  the 
frequent  prevalence  of  unfair  methods  in  these 
industries  suggests  such  practices  as  one  of  the 
important  causes  of  the  development  and  con- 
tinuance of  monopolistic  concerns.  In  numer- 
j)us  individual  instances  the  more  extensive 
the  development  or  the  employment  of  these 
methods  the  more  comprehensive  and  absolute 
the  monopoly.    The  National  Cash  Register 


Company  and  the  dissolved  Oil,  Tobacco,  and 
Powder  trusts  are  admirable  illustrations  of 
this  statement. 

From  the  point  of  view  of  the  believers  in 
the  competition  theory  of  monopoly  we  should 
perhaps  be  no  nearer  to  controlling  trusts  and 
monopolies  by  eliminating  these  unfair  methods, 
since  the  result  would  be  merely  fair  compe- 
tition with  gradual  elimination  imtil  a  monopo- 
listic condition  resulted.  Despite  this  view  of 
the  matter  there  are  reasons  for  believing  that, 
without  the  use  of  unfair  methods  of  compe-  •;/ 
tition,  it  would  be  extraordinarily  difficult  to 
erect  a  monopoly.  Further,  assuming  that  a 
monopolistic  organization  is  already  in  exist- 
ence, there  are  similar  and  equally  important 
reasons  for  believing  that  it  cannot  for  any 
considerable  length  of  time  maintain  its  pre- 
dominant position  without  the  use  of  such 
methods.  Let  us  briefly  examine  the  grounds 
for  such  a  view. 

According  to  the  theory  which  is  under  dis- 
cussion, the  inevitable  monopoly  may  occur 
through  either  combination  or  elimination. 
Considering  first  the  matter  of  combination,  it 
is  scarcely  to  be  believed  that  public  policy  iix 
the  United  States  will  countenance,  either  at 
the  present  time  or  in  the  immediate  future,  the 


(1 


1(1 


322 


Unfair  Competition 


formation  of  any  consolidation  which  would 
thereby  obtain  a  monopolistic  position  m  any 
field  of  industry.    If  monopolistic  combinations 
are  not  permitted,  it  is  clear  that  a  monopo- 
listic position    cannot    in   the   future,   as   in 
the  past,  be  attained  through  consoUdation. 
Assuming,  therefore,  that  monopoly  does  ap- 
pear in  an  industry,  it  must  in  the  absence  of 
unfair  methods  occur  through  the  elimination 
of  competitors  instead  of  by  way  of  combination 
and  consolidation.    In  other  words,  if  monopo- 
listic   consolidation  is  prevented   and   unfair 
methods  of  competition  eliminated,  a  monopo- 
listic position  can  result  only  from  superior  effi- 
ciency in  a  field  of  mdustry  for  a  sufficient  period 
of  years  to  enable  an  organization  to  obtain 
predominance  by  eliminating  its  competitors. 
But  there  is  nothing  necessarily  continuous  in 
efficiency ;  rather,  the  contrary.    Managements 
change  and  the  men  within  the  management. 
The  efficiency  of  organizations  fluctuates  from 
period  to  period  with  these  changes  and  with 
alterations  in  production,'  seUing,  and  other 
methods.    It  is  possible,  therefore,  to  doubt 
that  a  given  organization  can  remain  the  most 
efficient  for  a  period  of  sufficient  length  to 

*  Cf.,  for  example,  the  case  of  the  Artura  Photographic  Paper 
Company  related  j«j^a,  chap.  vi. 


Conclusion 


22  S 


enable  it  to  attain  its  ascendancy  solely  through 
elimination. 

But  this  is  only  one  side  of  the  question  under 
consideration.  Assuming  that  it  is  possible 
for  an  organization  to  attain  a  monopolistic 
position  in  the  fashion  just  described,  or  con- 
sidering an  organization  now  possessed  of  pre- 
donunant  strength,  what  surety  is  there  that 
this  situation  will  continue?  To  retain  its 
ascendancy  such  an  organization  must  (again  in 
the  absence  of  imfair  methods  of  competition) 
continue  to  rely  upon  its  efficiency.  If  it  does 
not  lose  ground,  its  efficiency  must  remain  con- 
tinuously equal  or  superior  to  that  of  competi- 
tors existing  in  or  entering  the  field.' 

Both  the  Steel  Corporation  and  the  Inter- 
national Harvester  Company  supply  some 
suggestive  evidence  as  to  the  possibilities  of 
maintaining  a  monopolistic  position.  In  the 
preparation  of  an  earlier  study  on  this  subject 
the  writer  searched  the  history  of  the  Steel 

» Some  qualification  of  these  pomts  should  probably  be  made. 
There  may  be  and  perhaps  often  are  other  factors  than  those  of 
purely  productive  and  selling  efficiency  which  tend  to  maintain 
the  predominance  of  a  monopolistic  organization,  such  as  the 
momentum  of  established  reputation,  large  capital,  etc.  At  the 
same  time  it  is  believed  that  these  factors  are  essentially  sub- 
ordinate to  productive  and  selling  efficiency  and  not  of  sufficient 
importance  in  and  of  themselves  either  to  obtain  or  retain  monopo- 
listic predomiance  for  an  organization. 


\ 


'I! 


224 


Unfair  Competition 


Corporation  in  vain  for  instances  of  unfair 
competition.  His  original  conclusion,  that  this 
organization  had  used  no  such  methods/  has 
since  been  confirmed  by  the  decision  of  the  lower 
court  in  the  dissolution  suit  against  that  cor- 
poration.' It  therefore  appears  possible  to  say 
with  authority  that  the  competition  of  the  Steel 
Corporation  has  been  fair.  Yet  this  organization 
has  lost  ground  relatively  in  comparison  with 
its  competitors.  We  find  it  to  be  true,  quoting 
the  decision  in  the  lower  court  in  the  steel  suit, 
"that  while  the  proofs  show  a  very  material 

« Political  Science  Quarterly,  XXIX,  (September,  1914),  488. 

*The  foUowing  statement  may  be  quoted  from  the  opinion 
of  Judge  Buffington:  "And  it  may  be  accepted  as  a  fact  that 
where  no  competitor  complains,  and  much  more  so  where  they 
unite  in  testifying  ....  that  the  business  conduct  of  the  Steel 
Corporation  has  been  fair,  we  can  rest  assured  there  has  been 
neither  monopoly  nor  restraint.  Indeed,  the  significant  fact 
should  be  noted  that  no  such  testimony  of  acts  of  oppression  is 
found  in  this  record  as  was  given  by  the  competitors  of  the 
Tobacco  or  Standard  comptanies  in  the  suits  against  those  com- 
panies. We  have  carefully  examined  all  the  evidence  given  by 
the  competitors  of  the  Steel  Corporation.  We  have  read  the 
testimony  of  customers  who  purchased  both  from  it  and  from  its 
competitors.  Its  length  precludes  its  recital  here,  but  we  may 
say  its  volume,  its  wide  range  of  location  from  which  such  wit- 
nesses came,  and  their  evidently  substantial  character  in  their 
several  communities,  make  an  inevitable  conclusion  that  the  field 
....  is  as  open  to  and  is  being  as  fully  filled  by  the  competitors 
of  the  Steel  Corporation  as  it  is  by  that  company."— Opinions, 
Utiited  States  v.  United  States  Steel  Corporation  ei  al.,  U.S.D.C. 
for  the  District  of  New  Jersey,  p.  22. 


Conclusion 


22s 


increase  of  forty-odd  per  cent  in  the  Steel  Cor- 
poration's business  from  1901  to  1911,  yet  this 
very  substantial  increased  percentage  of  the 
Steel  Corporation's  own  business  was  less  than 
that  made  by  each  of  eight  of  its  great  com- 
petitors : 


Company 

Imrreaseof 
ProductioD  from 

Percentage  of 
Increase 

Bethlehem  Steel  Co 

1901  to  1913 
1901  to  1913 
1901  to  1913 

I901  to  191 2 

1901  to  1913 

I9OI  to  191 2 
I901  to  191 2 

1901  to  191 1 

i  Tin  *» 

Indian*  Steel  Co 

1,495 
463 
206 

iSS 

152 

90 

63. 

•  / 
9 

4 
7 
S 

LaBeUe 

Jones  &  Laughlin 

Cambria  Steel  Co 

Colorado  Co 

Republic  Iron  and  Steel 

Lackawanna  Steel 

8 
2"' 

*  Probably  Indiana  Steel. 


"Whereas  at  its  organization  in  1901  the 
Corporation  may  be  fairly  said  to  have  con- 
trolled about  60  per  cent  of  the  entire  crude 
steel  and  finished  steel  business  of  the  country, 
at  the  close  of  1910  its  percentage  was  not 
much  over  50  per  cent."*  This  represents  a 
decline  of  about  16  per  cent  in  the  proportion 

«Opmions,  United  States  v.  United  States  Sted  Corporation 
et  al.,  cit.  supra,  p.  ii. 

'Report  of  the  Commissioner  of  Corporations  on  the  Steel 
Industry,  Part  I,  p.  373.  For  further  information  m  regard  to 
the  relative  proportion  in  the  steel  industry  which  is  occupied 
by  the  Steel  Corporation  consult  ibid.,  chap,  ix,  pp.  359-77,  and 
opinions.  United  States  v.  United  States  Steel  Corporation  et  al., 
cit.  supra,  pp.  8-14. 


'I'll  i  I  ii 


i 


ill 


!i 


226 


Unfair  Competition 


of  control  in  the  period  of  a  few  years.  More- 
over, it  took  place  in  spite  of  the  acquisition 
by  the  Steel  Corporation  of  the  Tennessee  Coal, 
Iron  and  Railroad  Company  and  several  other 
concerns.  Had  it  not  been  for  these  acquisi- 
tions, the  relative  decline  must  have  been  con- 
siderably greater.  These  facts  are  worth  noting 
as  an  indication  of  the  efficiency  of  competition 
when  artificial  and  uneconomic  restrictions  are 
removed. 

The  International  Harvester  Company  sup- 
plies a  somewhat  similar  example.  Though  it 
appears  that  the  Harvester  Company  has  not 
been  entirely  guiltless  of  unfair  methods  of  com- 
petition, it  has  not  been  especially  conspicuous 
therefor.  Moreover,  it  is  also  true  that  in  more 
recent  years,  since  about  1906  or  1907,  ex- 
tremely few,  if  any,  instances  of  such  practices 
mark  the  history  of  this  organization.  The 
principal  harvester  lines  are  binders,  mowers, 
and  rakes.  In  each  of  these  three  lines  the 
Harvester  Company  asserts  that  it  has  lost 
ground  in  relative  total  output.  In  1903  it  con- 
trolled the  following  percentages  of  the  total 
business  of  the  United  States:  binders,  98.15 
per  cent;  mowers,  92.05  per  cent;  rakes, 
84.90  per  cent.  These  percentages  of  control 
have,  it  is  claimed,  declined  to  the  following: 


Conclusion 


227 


binders,  85 .  04  per  cent  in  191 2 ;  mowers,  72 .  98 
per  cent  in  191 2;  rakes,  67 .  79  per  cent  in  1911.' 
If  these  figures  are  correct,  the  Harvester  Com- 
pany in  a  period  of  less  than  a  decade  has  lost 
approximately  the  following  percentages  of  the 
total  business  in  these  lines:  binders,  13  per 
cent;  mowers,  20  per  cent;  rakes,  20  per  cent. 
Moreover,  it  should  not  be  forgotten  that  it 
is  doubtful  whether  the  competition  theory  of 
monopoly  represents  anything  more  than  a 
tendency.*  Assuming  that  consoUdation  is  not 
permitted  and  that  unfair  methods  of  compe- 
tition are  prevented,  it  may  be  questioned 
whether  the  results  of  competition  will  ever 
extend  to  the  point  of  actual  monopoly  .^  To 
accept  the  theory  that  monopoly  would  result 
under  these  two  conditions  would  seem  also  an 
acceptance  of  the  doctrine  of  continuously 
greater  efficiency  on  the  part  of  the  monopolis- 
tic organization.  If  this  latter  theory  is  cor- 
rect, it  would  appear  to  follow  that  the  ordinary 
business  monopoly  is  in  fact  a  natural  monopoly. 
If  it  is  incorrect,  the  theory  represents  at  best 

'Statement,   brief,  and   argument   for   defendants,   United 
States  V.  International  Harvester  Company,  cit.  supra,  p.  189. 

'  Cf.  Liefmann's  statement  of  the  theory,  supra,  p.  219. 

'Though  perhaps  occasionally  one  concern  or  another  might 
occupy  a  very  strong  position. 


1/ 


Mi 


228 


Unfair  Competition 


a  tendency,  and  there  is  a  counteracting  if  not 
equal  tendency  in  the  opposite  direction. 

In  order  that  it  may  obtain  and  later  retain 
its  predominant  position,  an  organization  must, 
as  indicated,  maintain  an  efficiency  continuously 
equal  to  or  greater  than  that  of  other  organi- 
zations. The  moment  there  is  the  slightest 
decline  in  efficiency  there  is  a  tendency  for 
existing  competition  to  forge  ahead  or  for  latent 
competition  to  become  actual  and  efifective. 
Unless,  therefore,  we  are  prepared  to  accept 
the  doctrine  of  continuous  efficiency,  we  are 
faced  by  the  fact  that  the  tendency  of  monop- 
oly is  to  breed  competition  and  that  this  tend- 
ency more  or  less  completely  offsets  any 
tendency  of  fair  competition  to  be  turned  into 
monopoly. 

Is  there  any  sound  economic  reason  why  in- 
dustrial society  cannot  exist  on  a  competitive 
basis  under  the  operation  of  these  two  forces  ? 
Will  not  the  elimination  of  unfair  methods  of 
competition  and  the  continuation  of  the  poUcy 
of  preventing  consolidation  bring  about  this 
result?  If  efficiency  is  not  continuous,  there 
would  seem  to  be  no  good  reason  for  believing 
that  industry  cannot  continue  indefinitely  on 
this  basis  in  a  state  of  more  or  less  unstable 
equilibrium  in  which  the  waxing  and  waning 


Conclusion 


229 


efficiency  of  various  organizations  serves  at 
once  to  control  and  prevent  great  monopolies 
and  to  preserve  to  society  the  benefits  of 
competition. 

From  the  standpoint  of  society  it  is  probably 
immaterial  whether  the  goods  produced  for  the 
satisfaction  of  its  wants  are  the  product  of  a 
monopolistic  or  a  competitive  system.  Other 
things  being  equal,  society  is  interested  only 
in  seeing  that  they  are  produced  by  that  form 
of  industrial  organization  which  is  the  most 
efficient.  As  to  whether  monopoly  or  com- 
petition is  that  form  of  organization,  we  have 
so  far  had  practically  no  means  of  determining, 
though  the  reports  of  the  Commissioner  of 
Corporations  on  the  Harvester  Company  and 
the  tobacco  industry'  contain  some  interest- 
ing information  regarding  this  question.  From 
another  standpoint,  therefore,  it  becomes  of 
fundamental  importance  that  unfair  practices 
should  be  eliminated — in  order  that  we  may 
have  the  opportunity  to  observe  the  effects  of 
free  and  fair  competition  upon  business.  Only 
when  competition  is  freed  from  the  uneconomic 
restraints  to  which  it  has  been  subjected,  and 
not  before,  will  it  become  possible  really  to  test 
its  social  value.    If  under  these  circumstances 

'  Part  III  of  the  latterV 


1/ 


titil 


ti; 


':,■ 


230 


Unfair  Competition 


rtllN 


monopolies  thrive  and  develop,  this  should  be 
good  evidence  of  the  failure  of  competition 
and  the  efficiency  of  monopoUstic  industrial 
organization.  It  will  then  perhaps  be  time 
to  reject  once  and  for  all  the  theory  of 
competition,  adopt  monopoly,  and  so  regu- 
late it  as  to  insure  that  society  will  reap 
the  benefits  of  its  superior  efficiency.  But 
only  by  eliminating  unfair  methods  of  com- 
petition will  it  be  possible  to  arrive  at 
any  basis  for  a  decree  in  the  case  of 
competitive  organization  versus  monopolistic 
organization. 

In  order  to  do  away  with  methods  of  the 
character  discussed  in  this  volume,  the  Trade 
Commission  Act  has  declared  unlawful  unfair 
methods  of  competition,  while  sections  2  and  3 
of  the  Clayton  Act  have  specifically  prohibited' 
price  discriminations  and  exclusive  and  tying 
arrangements  ''where  the  effect  ....  may  he 
to  substantially  lessen  competition  or  tend  to 
create  a  monopoly. ^^^ 

The  mechanism  provided  for  eliminating  the 
practices  thus  declared  unlawful  appears  well 
adapted  for  the  purpose.  Whenever  the  Com- 
mission has  reason  to  believe  that  there  is  a 

'  With  certain  enumerated  exceptions. 
» Italics  are  the  writer's. 


Conclusion 


231 


violation  of  these  sections,'  it  issues  and  serves 
a  complaint  in  which  the  charges  are  stated  and 
a  notice  is  given  of  a  hearing  at  least  thirty 
days  after  service.  The  party  complained 
against  has  the  right  to  appear  and  show  cause 
why  an  order  should  not  be  entered  requiring 
him  to  desist  from  the  violation  of  law  charged 
in  the  complaint.  Any  party,  upon  good  cause 
being  shown,  may  be  permitted  by  the  Com- 
mission to  intervene  and  appear. 

If,  upon  hearing,  the  Commission  is  of  the 
opinion  that  the  method  of  competition  in 
question  is  prohibited,  or  sections  2  or  3  of  the 
Clayton  Act  violated,  it  makes  a  report  in 
writing,  stating  its  findings  as  to  the  facts,  and 
issues  an  order  to  the  party  complained  against, 
ordering  him  to  desist  from  the  use  of  the 
method  of  competition  or  violation  of  law  in 
question.  The  Commission  may  modify  or  set 
aside  its  report  or  order  at  any  time  prior  to 
the  filing  of  the  transcript  of  the  record  of  the 
hearings  with  the  Circuit  Court  of  Appeals. 

In  order  to  enforce  the  order  of  the  Com- 
mission it  is  provided  that  if  it  is  not  obeyed 
the    Commission   may  apply  to  the   Circuit 

» And  in  addition,  in  the  case  of  the  Trade  Commission  Act, 
''and  if  it  shall  appear  ....  that  a  proceeding  in  respect  thereof 
would  be  in  the  inter^t  of  the  public." 


r 


/(/ 


232 


I  i. 


M 


) ' 


Unfair  Competition 


ii  ' 


Court  of  Appeals  of  any  circuit  where  the 
method  in  question  was  used  or  where  the 
offending  party  resides  or  carries  on  his  busi- 
ness, at  the  same  time  fihng  a  transcript  of  the 
record  of  the  proceedings  before  it,  including 
the   testimony   and    the   report    and   order. 
The  court  then  takes  jurisdiction,  notifies  the 
party,  and  has  full  power  to  enter  a  decree, 
aflarming,  modifying,  or  setting  aside  the  order  of 
the  Commission.    The  findings  of  the  Commis- 
sion as  to  the  facts  are  conclusive  if  supported 
by  testimony.    If  either  party  appUes  to  the 
court  for  leave  to  adduce  additional  testimony 
and  can  show  that  it  is  material,  and  also  good 
reasons  why  it  was  not  introduced  before  the 
Commission,  then  the  court  may  direct  that 
such  additional  evidence  be  taken  before  that 
body.     The  Conmiission  may  thereupon  modify 
its  findings  or  make  new  ones  and  again  file 
the  results  with  the  court,  together  with  any 
new  evidence  and  with  its  recommendations, 
if  any,  for  the  modification  or  setting  aside  of 
the  original  order.    The  judgment  and  decree 
of  the  Circuit  Court  of  Appeals  is  made  final 
except  that  the  Supreme  Court  may  review 
upon  certiorari.     Moreover,  the  jurisdiction  of 
the  former  court  is  made  exclusive  and  all  such 
proceedings  are  given  precedence  over  all  other 


Conclusion 


233 


cases.  Any  party  against  whom  an  order  is 
made  by  the  Commission  may  obtain  a  review 
of  it  by  making  an  application  to  the  Circuit 
Court  of  Appeals  to  have  it  set  aside.' 

Now,  the  contention  can  be  forcibly  advanced 
that  all  unfair  methods  of  competition  fall 
within  the  scope  of  either  the  "restraint  of 
trade"  or  the  "monopoly"  sections  of  the  Sher- 
man Anti-Trust  Act.    In  other  words,  all  acts 
of  unfair  competition  are  either  contracts,  com- 
binations, or  conspiracies  in  restraint  of  trade, 
or  else  constitute  monopoUzation,  attempts  to 
monopolize,  or  combinations  and  conspiracies 
to  monopolize.    It  is  indeed  true  that  numerous 
injunctions  in  suits  brought  by  the  government 
have  flatly  forbidden  in  specific  cases  the  use 
of  many  of  the  practices  described  in  this  vol- 
ume.    Such  has  been  true,  for  example,  of  the 
decrees  against  the  American  Thread,'  Bur- 
roughs   Adding    Machine,'    Keystone    Watch 
Case,  General  Electric,'  and  American  Coal 
Products,'  companies,  and  also  of  those  against 
the  Eastern  States  Retail  Lumber  Dealers  and 
Southern  Wholesale  Grocers'  associations. 

»  Cf .  section  5  of  the  Trade  Commission  Act  and  also  W.  H.  S. 
Stevens,  "The  Trade  Commission  Act,"  American  Economic 
Review,  IV  (December,  19 14),  850-51. 

"  Consent  decrees. 


/ 


ij 


234 


Unfair  Competition 


Conclusion 


235 


ijiiSi 


I 


m 


But  it  is  to  be  noted  that  in  a  considerable 
proportion  of  cases  these  decrees  have  been 
"consent  decrees''  and  have  not  been  contested 
by  the  companies.  In  several  other  cases  in- 
volving the  Sherman  Act  the  decisions  of  the 
courts  have  been  far  from  uniform  in  regard  to 
certain  practices.  Thus,  for  example,  rebate 
provisions  to  enforce  exclusive  arrangements 
have  been  several  times  before  the  courts.  In 
the  Whitwell  case  the  tobacco  rebate  plan  to 
secure  exclusive  dealing,  previously  described,* 
was  upheld  under  the  Sherman  Act.  A  similar 
view  was  entertained  in  the  Greene  case* 
several  years  earUer,  and  among  more  recent 
cases  the  deferred-rebate  contracts  of  the 
Brazilian  Steamship  Conference  were  upheld 
by  the  decision  in  the  Prince  Line  case.^ 

On  the  other  hand,  the  same  type  of  arrange- 
ments was  emphatically  condemned  by  the 
decree  of  the  court  against  the  Great  Lakes 
Towing  Company .-» 

These  instances  are  perhaps  sufficient  to 
demonstrate  the  fact  that  it  might  have  been 
most  difficult  to  have  prevented  unfair  methods 
of  competition  under  the  Sherman  Act  alone. 
On  the  other  hand,  it  would  appear  that  the 


« Supra,  chap.  vii. 
■52  Fed.  104. 


*  220  Fed.  230. 

*  208  Fed.  733. 


general  prohibition  of  the  Trade  Act  is  broad 
enough  to  reach  any  and  all  methods  which 
fail  to  satisfy  the  requirements  of  a  fair  com- 
petition/ 

'  It  is  certainly  open  to  question  as  to  whether  anything  was 
gained  by  the  passage  of  sections  2  and  3  of  the  Clayton  Act. 
There  is,  it  is  true,  considerable  force  in  the  argument  that,  m 
view  of  the  Dick  decision,  the  Commission  could  not  have  reached 
exclusive  and  tying  arrangements  under  section  5  (cf .  W.  H.  S. 
Stevens,  "The  Clayton  Act,"  American  Economic  Review,  V 
[March,  1915],  pp.  43  flf.).  But  this  is,  at  least,  a  debatable  point. 
At  the  same  time  it  must  be  also  admitted  that  it  is  possible  so 
to  interpret  section  5  as  to  narrow  the  jurisdiction  of  the  Commis- 
sion. Such  a  result  may  occur  either  through  the  interpretation 
given  to  the  procedural  portion  of  section  5  of  the  Trade  Act  or 
the  construction  applied  to  that  section  in  the  light  of  sections 
2  and  3  of  the  Clayton  Act. 

In  that  part  of  section  5  which  outlines  the  procedure  of  the 
Commission  in  preventing  unfair  methods  and  which  follows 
the  general  declaration  that  unfair  methods  of  competition  are 
unlawful,  we  find  that  the  Conmiission  is  directed  to  institute 
proceedings  whenever  it  "shall  have  reason  to  believe  that  a  cor- 
poration is  using  an  unfair  method  of  competition  and  if  it  shall 
believe  ....  that  a  proceeding  by  it  in  respect  thereof  would 
be  in  the  interest  of  the  public:*    [Italics  the  writer's.] 

In  a  recent  treatise  on  the  Federal  Trade  Commission  we 
find  the  following  mterpretation  given  to  this  clause: 

"It  would  therefore  seem  to  follow  that  an  indispensable 
attribute  of  any  and  every  method  of  competition  which  lies 
within  the  inhibition  of  the  Trade  Law,  must  be  a  tendency,  or 
a  susceptibility  of  use,  to  restrain  interstate  or  foreign  trade 
unduly,  or  to  create  or  perpetuate  a  monopoly"  (Harlan  and 
McCandless,  Federal  Trade  Commission,  p.  26). 

Good  reasons  for  refusing  to  accept  any  such  construction 
may  easily  be  given.  In  the  first  place,  the  words  "in  the 
interest  of  the  pubUc"  occur  in  a  procedural  portion  of  section  5 
and  have  to  do  only  with  the  manner  in  which  the  Commission 


t> 


II 


!fi 


m\' 


r 

f 


mm 


236 


Unfair  Competition 


Certain  further  points  may  be  mentioned 
which  favor  the  Commission  method  of  deal- 
ing with  unfair  methods  of  competition. 

The  Trade  Commission  has  very  broad  inves- 
tigatory powers.    In  virtue  of  those  powers  it 

acts.  Being  procedural  in  character,  it  would  appear  that  it  is 
^entirely  unnecessary  that  the  Commission  either  allege  or  attempt 
to  prove  that  there  is  or  is  not  public  interest,  on  the  theory  that 
this  is  not  a  justiciable  question.  In  other  words,  if  the  Com- 
mission decides  to  proceed,  that  action  is  conclusive  as  to  the 
existence  of  public  interest,  whereas,  if  it  decides  not  to  proceed, 
such  a  determination  is  equally  as  conclusive,  either  as  to  the 
non-existence  of  a  reason  to  believe  that  an  unfair  method  is 
being  used  or  that  a  proceeding  would  be  in  the  interest  of  the 
public.  Were  the  phrase  under  discussion  not  in  the  procedural 
portion  of  section  5,  perhaps  an  entirely  different  view  might 
logically  be  taken.  As  the  act  stands,  however,  it  is  believed  that 
there  is  no  necessity  for  the  meaning  of  the  words  "in  the  interest 
of  the  public"  to  become  the  subject  of  construction  except 
within  the  Commission  itself,  and  that,  once  the  Commission  has 
decided  to  issue  or  not  to  issue  a  complaint,  the  matter  is  irrevo- 
cably settled  so  far  as  the  phrase  in  question  is  concerned. 

Such  being  the  case,  it  is  gravely  to  be  doubted  that  the  Com- 
mission in  considering  imf  air  methods  of  competition  will  be  bound 
by  any  such  narrow  construction  of  the  phrase  "in  the  interest 
of  the  public"  as  that  laid  down  by  Harlan  and  McCandless. 
Presumably  the  Commission  will  be  governed  by  economic  and 
not  legal  considerations.  As  the  writer  has  endeavored  to 
indicate,  "the  interest  of  the  public"  lies  in  securing  the  best  goods 
at  the  lowest  prices  or,  translated  into  other  terms,  in  a  competition 
of  productive  and/or  selling  efficiency.  In  other  words,  the  power 
given  to  the  Trade  Commission  imder  section  5  b  the  power 
to  prevent  those  methods  which  do  not  constitute  a  competition 
of  productive  and /or  selling  efficiency.  This  is  an  economic 
rather  than  a  legal  test,  and  it  is  submitted  that  it  is  the  most 
comprehensive  one  that  can  be  applied.    The  determination  of 


Conclusion 


237 


can  proceed  to  investigate  informally,  compel- 
ling the  production  of  records,  etc.,  to  an  extent 
impossible,  judicially,  except  with  all  pubUcity 
incident  to  a  suit  at  law  and  possible  damage 
resulting   therefrom,   if  the  charges  are  not 

the  fairness  or  imfaimess  of  a  given  method  should  be  made  from 
this  standpoint,  and  if  it  is,  it  seems  clear  that  the  words  "in  the 
interest  of  the  public"  are  mere  surplusage,  since  a  competition 
of  productive  and  selling  efficiency  is,  in  the  last  analysis,  practi- 
cally s)monomous  with  the  public  mterest. 

Under  the  restraint-of-trade  and  monopoly  interpretation  of 
section  5  it  is  not  impossible  that  practices  would  not  be  reached 
which,  undoubtedly,  must  be  regarded  as  imfair  under  the  pro- 
ductive and /or  selling  efficiency  construction.  In  addition,  the 
attempt  to  apply  a  restraint-of-trade  and  monopoly  test  to 
section  5  would  be  to  run  the  grave  risk  that  certain  methods 
might  be  declared  lawful  if  used  by  a  small  concern  against  a 
monopolistic  organization  though  imfair  when  used  by  a  pre- 
dominant corporation  against  a  small  concern.  This  is  a  contra- 
dictory and  economically  imsound  proposition.  A  large,  even 
monopolistic,  organization  is,  under  section  5,  as  much  entitled 
to  protection  against  unfair  competitive  methods  on  the  part 
of  the  small  concern  as  is  the  latter  against  such  methods  when 
used  by  the  former.  Whether  the  large  organization  can  and 
will  always  obtain  it  under  the  restraint-of-trade  and  monopoly 
test  would  seem  at  least  debatable.  Probably  we  may  con- 
cede that  the  courts  would,  m  the  majority  of  cases,  take  an 
economically  correct  position  in  this  matter.  At  the  same  time 
the  divergence  of  court  opinions  on  certain  methods,  previously 
referred  to,  leads  to  the  conclusion  that  such  might  not  alwa)rs 
be  the  case,  and  this  constitutes  a  sound  reason  for  the  rejection 
of  any  restraint-of-trade  and  monopoly  interpretation. 

In  a  somewhat  similar  fashion  the  attempt  is  made  to  narrow 
the  operation  of  section  5  of  the  Trade  Act  by  construing  it  in  the 
light  of  sections  2  and  3  of  the  Clayton  Act.  As  akeady  indi- 
cated, section  5  declares  unlawful  unfair  methods  of  competition 


tl 


/  r. 


^:l 


i 


238 


Unfair  Competition 


sustained.  The  Commission  can  conduct  an 
examination  of  methods  of  competition  quietly 
and  without  undue  publicity,  determining 
whether  the  situation  disclosed  demands  that 
a  formal  complaint  shall  be  brought  and  open 

in  commerce,  while  sections  2  and  3  of  the  Clayton  Act  similarly 
declare  ujolawful  price  discriminations  and  exclusive  and  tying 
arrangements  "where  the  effect  ....  may  be  substantially 
to  lessen  competition  or  tend  to  create  a  monopoly."  From  this 
last  clause  there  is  developed  the  following  line  of  reasoning: 
"The  indicia  of  unlawfulness  common  to  all  of  the  practices  for- 
bidden by  sections  two,  three,  seven  and  eight  of  the  Clayton 
Law  are  the  eliminating  or  substantial  lessening  of  competition, 
the  restraining  of  commerce,  and  the  creating  of  monopoly. 
The  same  indicia  must,  it  would  seem,  he  indispensable  to  a  com- 
petitive trade  practice  before  it  can  he  held  to  he  within  the  purview 
of  the  Trade  Law."  (Harlan  and  McCandless,  op.  cit.,  p.  28;  italics 
arc  the  writer's). 

It  is  obvious  that  such  a  construction  as  this  is  economically 
unsound  for  precisely  the  same  reasons  as  have  just  been  men- 
tioned in  considering  the  interpretation  of  the  clause  "in  the 
interest  of  the  public."  Not  only  is  this  true,  but  there  are  also 
other  good  reasons  for  rejecting  any  such  interpretation.  In  the 
fixst  place,  it  scarcely  needs  to  be  pointed  out  that  if  Congress 
had  intended  that  section  5  should  be  so  construed  it  would  have 
said  so.  In  the  second  place,  the  Clayton  Act  was  passed  after 
the  Trade  Act,  and  while  it  is  by  no  means  uncommon  to  use 
a  prior  act  in  determining  the  construction  to  be  given  to  the 
terms  of  a  later  statute,  it  appears  scarcely  logical  to  reverse  the 
method  and  to  interpret  a  prior  act  by  the  terms  of  a  subsequent 
measure.  (This  is  believed  to  be  true  even  though  the  sup- 
porters of  such  a  construction  may  say  that  the  two  laws  should 
be  taken  as  integral  parts  of  the  same  legislation.) 

Again,  it  is  difficult  to  conceive  that  anyone  regards  inter- 
corporate stockholding  and  interlocking  directorates — the  things 
forbidden  by  sections  7  and  8  of  the  Clayton  Act — as  unfair 


Conclusion 


239 


hearings  held.  In  many  cases,  as  it  has  already 
appeared,  settlements  will  be  effected  infor- 
mally.' 

On  the  mere  suggestion  of  the  Commission 
many  practices  will  probably  be  discontinued, 

methods  of  competition.  Such  being  the  case,  it  is  submitted 
that  it  is  not  sound  logic,  from  either  a  legal  or  other  standpoint, 
even  to  imply  that  the  wording  of  these  sections  should  deter- 
mine in  any  way  whatsoever  the  construction  of  section  s  of  the 
Federal  Trade  Act. 

Thirdly,  section  5  does  not  in  terms  declare  either  price  dis- 
criminations or  exclusive  and  tying  arrangements  to  be  unfair 
methods  of  competition.  Instead,  it  only  declares  imlawful  un- 
fair methods  of  competition  generally.  Similarly,  neither  section 
2  nor  section  3  of  the  Clajrton  Act  contains  in  terms  anything 
declaring  the  methods  which  they  prohibit  to  be  methods  of 
unfair  competition.  Obviously,  therefore,  it  is  only  by  constru- 
ing or  interpreting  section  5  that  it  is  possible  to  assert  that 
that  section  includes  practices  which  are  mentioned  in  sections  2 
and  3.  "But,"  say  the  proponents  of  the  competition-and- 
monopoly  construction,  "it  is  evident  from  the  debates  that 
Congress  considered  price  discriminations  and  exclusive  and 
tying  arrangements  to  be  unfair  methods  of  competition." 
True,  but  this  by  no  means,  settles  the  question  which  we 
are  discussing.  The  debates  are  merely  expressions  of  the 
opinions  of  various  individuals.  The  mind  of  Congress  is  to 
be  properly  interpreted  only  in  the  acts  to  which  it  gives  expres- 
sion in  the  form  of  measures  passed  and  amendments  and  addi- 
tions to  those  measiures.  Assuming  that  Congress  really  regarded 
the  acts  prohibited  by  sections  2  and  3  as  imfair  methods  of  com- 
petition, it  should  not  be  forgotten  that  neither  of  these  sections 

« Cf.  Federal  Trade  Commission,  Conference  Rulings^  Bull. 
No.  I.  Cf.  Report  on  the  Fertilizer  Industry,  the  arrangements 
made  with  manufacturers  for  the  discontinuance  of  the  use  of 
bogus  names. 


4i 


H 


1. 


11 


■.■\>mm 


I 


240 


Unfair  Competition 


the  concern  or  concerns  involved  preferring 
to  do  this  rather  than  that  a  formal  complaint 
should  be  issued  against  them.  In  some  cases 
it  will  doubtless  be  true  that  the  suggestion  of 
the  Conmiission  will  cause  the  elimination  of 
detrimental  business  practices  even  though  the 
Commission  might  have  no  power  imder  either 
the  Trade  Act  or  the  Cla)^on  Act  to  take  formal 

as  originally  passed  by  the  House  contained  the  phrase  "where 
the  eflfect  may  be  substantially  to  lessen  competition  or  tend  to 
create  a  monopoly,"  nor  words  which  could  be  similarly  construed. 
The  Senate  struck  out  the  price-discrimination  section  on  the 
theory  that  the  methods  thereby  prohibited  were  included  in 
section  5,  and  passed  an  exclusive  and  tying  section  applying  only 
to  patented  articles,  not  "where  the  effect  may  be,"  etc.,  but 
declaring  all  such  conditions  imlawful  and  null  and  void,  as  being 
in  restraint  of  trade  and  contrary  to  public  policy. 

Until  the  House  and  Senate  bills  went  to  conference,  there- 
fore, it  may  be  reasonably  argued  that,  so  far  as  Congress  regarded 
exclusive  and  tying  arrangements  and  price  discriminations  as 
unfair  competition,  it  considered  them  so  to  be  without  any 
reference  to  the  lessening  of  competition  or  the  creation  of  monop- 
oly. It  may  therefore  be  doubted  that  on  the  return  of  the  Clay- 
ton Act  from  conference,  with  this  clause  incorporated  in  sections 
2  and  3,  Congress  suddenly  reversed  its  previous  conclusions  and 
decided  that  these  methods  could  be  unfair  competition  only 
"where  the  effect  ....  may  be  to  substantially  lessen  competi- 
tion or  tend  to  create  a  monopoly."  A  much  more  reasonable  con- 
struction of  congressional  action  than  this  would  seem  to  be  that 
price  discriminations  and  exclusive  and  tying  arrangements  are 
per  se  imlawful  and  presiunably  per  se  unfair  as  well  under  the 
conditions  incorporated  in  sections  2  and  3  in  conference.  It  is 
submitted  that  nothing  more  than  this  was  intended.  In  other 
words,  the  enactment  of  section  5  made  unlawfid  price  dis- 
criminations and  exclusive  and  tying  arrangements  in  so  far  as 


Conclusion 


241 


action.  Much  of  the  work  of  the  Commission, 
performed  quietly  in  this  fashion,  will  probably 
never  become  a  matter  of  public  record  so  far 
as  the  names  of  the  parties  involved  are 
concerned,  but  for  all  that  it  should  not  be 
overlooked  that  the  work  will  have  been  accom- 
pUshed  and  a  free,  fair,  and  clean  competition 
promoted. 

these  may  be  used  in  such  a  way  as  to  constitute  unfair  methods 
of  competition.  They  are  not  per  se  unlawful,  however,  inas- 
much as  it  is  conceivable  that  any  one  of  the  three  may  be  used 
in  an  entirely  legitimate  fashion.  Sections  2  and  3  of  the  Clayton 
Act,  however,  went  a  step  farther  than  section  5.  In  effect  they 
declared  that,  without  reference  to  the  question  of  fairness  or 
unfairness,  price  discriminations  and  exclusive  and  tying  arrange- 
ments were  per  se  imlawful,  "  where  the  effect  may  be  substan- 
tially to  lessen  competition  or  tend  to  create  a  monopoly,"  and 
that  under  such  conditions  it  is  beyond  the  power  either  of  the 
Commission  or  of  the  courts  to  find  in  favor  of  such  methods. 
Under  section  5  the  Commission  and  the  courts  may  find  either 
for  or  against  any  one  of  these  three  methods,  depending  on  the 
manner  in  which  the  said  method  is  used.  Under  sections  2  and 
3  they  must  always  find  against  any  one  of  them  where  the  effect 
....  may  be  to  substantially  lessen  competition  or  tend  to 
create  a  monopoly. 

Against  such  an  interpretation  there  may  perhaps  be  urged, 
from  the  legal  standpoint,  two  common-law  rules  of  statutory 
construction:  (a)  that  where  two  statutes  relate  to  the  same 
subject-matter,  the  subsequent  one  in  point  of  time  works  a  pro 
tanto  repeal  of  the  prior  law;  (6)  that  where  two  statutes  relate 
to  the  same  subject-matter  and  one  is  general  and  the  other  spe- 
cific and  enumerative,  the  latter  controls.  In  reply,  however,  it 
may  be  pointed  out  that  there  is  also  a  third  rule  of  statutory 
construction,  that  where  two  laws  are  in  apparent  conflict  the 
court  should  so  construe  them  as  to  give  full  effect  to  each  so  iax 


\ 


4i 


242 


Unfair  Competition 


Conclusion 


243 


.If 


I 


i 

1 

1 

ill 

1  * 

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> 

HI 


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fl 


ii 


Presumably  a  great  portion  of  the  time  of  the 
Commission  will  be  devoted  to  the  prevention 
of  unfair  methods  of  competition.  That  body 
has  at  its  command  a  large  force  of  experts, 
including  the  very  competent  staff  of  the  old 

as  not  incoimstent  with  the  other.  Section  5  of  the  Trade  Act 
is  both  the  prior  and  the  general  law.  Sections  2  and  3  of  the 
Clayton  Act  are  subsequent  and  specific,  and  the  methods  they 
prohibit  are  unlawful  only  "where  the  efect  ....  may  he  to  sub- 
stantially lessen  competition  or  tend  to  create  a  monopoly.'*  (Italics 
are  the  writer's.) 

Since  section  5  does  not  contain  this  qualifying  clause,  it 
should  follow  that  section  5  can  be  repealed  or  controlled  by  sec- 
tions 2  and  3,  under  the  first  two  rules  of  statutory  construction 
which  have  been  mentioned,  only  to  the  extent  that  price  dis- 
criminations and  exclusive  and  tying  arrangements  (the  things 
forbidden  by  sections  2  and  3)  operate  in  such  a  manner  that  the 
"effect  ....  may  be  to  substantially  lessen  competition  or 
tend  to  create  a  monopoly,"  and  that  as  to  all  other  discrimina- 
tions and  exclusive  and  tying  arrangements  section  5  remains  in 
full  force  and  effect. 

In  the  opinion  of  the  writer,  therefore,  sections  2  and  3  do 
not  in  reality  limit  the  scope  of  section  5,  but  merely  take  from 
the  courts  and  the  Conunission  the  power  to  find  lawful  these 
three  specific  methods  "where  the  effect  ....  may  be  to 
substantially  lessen  competition  or  tend  to  create  a  monopoly" — 
nothing  more. 

This  interpretation,  which  has,  it  is  submitted,  a  reasonably 
soimd  basis,  gives  the  widest  possible  construction  to  the  author- 
ity of  the  Commission.  Under  such  an  interpretation  the  Com- 
mission would  apparently  have  the  power  to  proceed  against 
price  discriminations  and  exclusive  and  tying  arrangements 
under  section  5  in  those  cases  where  such  arrangements  were 
being  imfairly  used,  but  when  it  might  be  practically  impossible 
to  show  that  the  effect  might  be  either  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly. 


Bureau  of  Corporations,  which  the  Trade  Law 
provided  that  it  should  take  over.  Its  constant 
study  of  economic  and  business  conditions, 
assisted  by  its  large  economic  and  legal  research 
staff,  should  develop  a  knowledge  of  competi- 
tive conditions  impossible  for  any  court  to 
acquire.  Decisions  will  be  based  primarily 
upon  economic  considerations  and,  regardless 
of  whether  cases  are  settled  informally  or  by 
the  issuance  of  formal  complaints,  much  more 
rapid  and  efficacious  results  ought  to  be 
obtained  than  could  be  secured  through  the 
medium  of  the  courts  alone.  At  the  same  time 
in  the  case  of  formal  complaints  the  Circuit 
Coiurt  of  Appeals  may,  by  its  decree,  alter  or 
modify  the  orders  of  the  Commission  upon 
application.  This  will  prevent  injustice,  while 
the  power  given  the  Commission  to  make  orders 
ought  logically  to  result  in  developing  an  eco- 
nomic rather  than  a  legal  view  of  unfair  compe- 
tition. 

Bearing  all  these  points  in  mind,  it  is  difficult 
to  accept  the  view  of  some  that  the  new  func- 
tions conferred  upon  the  Trade  Commission 
could  have  been  more  satisfactorily  performed 
by  the  Department  of  Justice  and  the  courts 
than  by  the  Trade  Commission.' 

'  Daily  Cong.  Rec.,  64th  Cong.,  ist  sess.,  Vol.  Lin,  p.  11566. 


m 


(, 


244 


Unfair  Competition 


Until  unfair  competition  is  eliminated  it  is 
xj  doubtful  whether  the  trust  problem  will  be 
solved.  The  legislation  of  the  Wilson  admin- 
istration has  attempted  to  destroy  unfair 
practices,  and  an  apparentiy  good  method  has 
been  provided  for  so  doing.  It  is  to  be  hoped, 
and  indeed  to  be  expected,  that  the  results  will 
be  important  and  that  the  attempt  made  to 
prevent  unfair  competition  will  prove  a  for- 
ward step  on  the  road  to  the  ultimate  solution 
of  the  trust  problem. 


INDEX 


ft'' 


w 


Hlff 


1   ) 


1 


^11 


II 


il 


I 


INDEX 


Abbott,  C.  S.,  testimony  re 
Eastman  exclusive  policy, 
84. 

Adding  Machine  Co.*s  threats 
to  compete  with,  191  n. 

Adriance  Machine  Co.,  en- 
grossing contract  with  Can 
Co.,  144. 

Adriance,  Piatt  &  Co.,  threat- 
ened by  National  Harrow 
Co.,  176-78. 

Aluminum  Co.  of  America: 
engrossing  baunte  supply, 
151-52;  engrossing  contract 
with  General  Chemical  Co., 
151-52;  acquires  stock. 
Bauxite  Co.,  151;  engross- 
ing contract  with  Norton 
Co.,  152;  delaying  bills  of 
lading,  ceasing  shipments, 
etc.,  216. 

American  Can  Co.,  bogus  in- 
dependent concerns,  31-32; 
preferential  contract  with 
Tin  Plate  Co.,  122-23;  size 
of  tin-plate  rebates,  125-26; 
engrossing  can  machinery 
contracts  with  Bliss  Co., 
144-45,  Adriance  Machine 
Co.,  144,  Ferracute  Machine 
Co.,  144,  Max  Ams  Co., 
146-47;  acquisitions,  144. 

American  Cash  Register  Co., 
spied  on  by  National,  159- 
60. 

American  Coal  Products  Co., 
conditional  requirement,  71- 
72. 


American  Maize  Products  Co.: 
successor  of  Western  Glu- 
cose Co.,  30;  subject  of 
agreement  between  Com 
Products  and  Royal  Baking 
Powder  companies,  30;  re- 
lations with  Stein,  Hirsh  & 
Co.,  30-31- 

American  Press  Association, 
bogus  independent  houses, 

32-33. 

American  Stopper  Co.  See 
Bogus  Independent  Con- 
cerns. 

American  Sugar  Refining  Co., 
manipulation  against  Penn- 
sylvania Sugar  Refining  Co., 
215-16. 

American  Thread  Co.  Su 
Thread  Combination. 

American  Tin  Plate  Co.,  pref- 
erential contract  with  Can 
Co.,  122-23. 

American  Tobacco  Co.:  num- 
ber of  bogus  concerns,  22; 
methods  of,  22-23;  bogus 
Queen  City  Co.  operated 
with  Luhrman  &  Wilbem, 
23-24;  request  of,  for  in- 
formation regarding  inde- 
pendent shipments,  36;  plug- 
tobacco  war,  42-44;  fight- 
ing-brand "Battle  Axe,"  43; 
increase  of  plug  control,  43- 
44;  losses  on  plug,  44;  ex- 
clusive arrangements,  82; 
rebates  supporting  exclusive 
arrangements,  113;  engross- 
ing of  cigarette  machinery, 


247 


' 


248 


Unfair  Competition 


Index 


249 


w 


II 


% 


140-42;  contract  with  Bon- 
sack  Machine  Co.,  141-42. 

Anti-trust  acts.  See  Clayton 
Act,  Sherman  Anti-tnist  Act 

Anti-trust  suits,  effect  on  har- 
vester exclusive  policy,  85- 

oO. 

Artura  photographic  paper: 
blacklisted,  106-9;  develop- 
ment and  rapid  rise  of,  109- 
11;  and  Eastman  Kodak 
paper,  iio-ii. 

Associations.  See  Pottery  As- 
sociations; Trade  Associa- 
tions. 

Atlanta  Cash  Register  Co., 
bought  out  by  Watson,  29. 

Australia:  provisions  against 
tying  clauses,  70  n.;  law 
linuting  selection  of  cus- 
tomers, 112  n.;  laws  regard- 
ing rebates,  n.  1 1 7-18. 

Baking  powder.  See  Royal 
Baking  Powder  Co. 

Barrett  Mfg.  Co.  See  Ameri- 
can Coal  Products  Co. 

Bath  Tub  Trust:  exclusive 
arrangements,  86-87;  eflPect 
of  exclusive  arrangements, 
89-90;  rebates  for  exclusive 
dealing,  114-15. 

"BatUe  Axe."  See  Fighting 
Brands;  Plug  Tobacco. 

Baugh  &  Sons,  no  bogus  con- 
cerns owned  by,  ^^. 

Bauxite.  See  Aluminum  Co. 
of  America;  General  Bauxite 
Co. 

Birmingham  Powder  Co.,  local 
price-cutting  against,   14. 

Black  Book.    See  Books. 

Blacklists:  general  nature,  97; 
by  wholesale  and  retail 
trade  organizations,  97-105; 


purpose  in  trade  associations, 
98-99;  classification,  99- 
loi;  trade  association 
"recommended  lists,"  101-2; 
unfairness  of  association 
black  list,  103-5;  and  ex- 
clusive arrangements,  105; 
Kodak  violation  tickler  on 
"Artura,"  106-9;  unfairness 
with  exclusive  arrangements, 
109-12;  espionage  to  assist, 
161;  intimidation  in  sup- 
port of  lumber,  172-73. 
See  also  contents  of  chap.  vi. 

Blanchet  Frdres  &  Kleber:  and 
Rives  photographic  paper, 
149;  combined  in  General 
Paper  Co.,  149.  See  also 
General  Paper  Co. 

Bliss,  E.  W.,  Co.,  engrossing 
contract  with  Can  Co.,  144- 
45- 

Blue  Books.    See  Books. 

Bogus  independent  concerns: 
definition,  19;  Powder  Trust 
"yellow    dog"    companies, 
19-21;  Climax  Powder  Mfg. 
Co.,    20,    21;     New    York 
Powder  Co.,  20,  21;   Roj^ 
Co.  of  Lamp  Combination, 
21;    character  and  number 
of    Standard    OO's,    21-22; 
number  of  American  Tobac- 
co's,  22;    R.  A.  Patterson 
Tobacco  Co.,  22-23;   Wells, 
Whitehead  Tobacco  Co.,  23, 
36;     Queen    City   Tobacco 
Co.,    23-24;     of    National 
Cash  Register  Co.,   24-29; 
Weiler  Cash  Register  Co., 
24-26;  Universal  Cash  Reg- 
ister   Co.,    25-26;     Union 
Computing    Machine    Co., 
26-27;      Watson     Co.,     to 
meet    second-hand    register 
competition,   28-29;    Stein, 
Hirsh  &  Co.,  of  Com  Prod- 
ucts Co.,  30-3 1 ;  of  American 


Can  Co.,  31-32;  American 
Stopper  Co.,  31-32;  Union 
Stock  Yards  Can  Co.,  32; 
of  American  Press  Asso- 
ciation, 32-33;  extent  in 
fertilizer  industry,  33;  pur- 
pose in  fertilizer  industry, 
33  n.;  of  N.Y.,  N.H.  & 
H.  R.R.  Co.,  34-35;  U.S. 
Transportation  Co.,  34; 
Neptune  Line,  34;  Joy  Line, 
35;  compared  with  local 
price-cutting,  35-39;  and 
information  on  competitors, 
35-37;  unfairness,  35-39; 
resemblance  to  fighting  in- 
struments, 52-53.  See  also 
contents  of  diap.  ii. 

Bonsack  Machine  Co.,  en- 
grossing contract  with  Amer- 
ican Tobacco  Co.,  141-42. 

Books:  Red,  Blue,  and  Green, 
in  classification,  loo-ioi; 
Black  and  White  of  lumber 
associations,  209. 

Bottle  caps.  See  Crown  Cork 
&  Seal  Co. 

Boycotts.    See  Black  Lists. 

Brunswick- Balke-CoUender 
Co.,  threats  to  compete 
with,  190-91. 

Burlington  Railroad.  See  Chi- 
cago, Biurlington  &  Quincy 
R.R.  Co. 

Button  fasteners.  See  Hea- 
ton  Peninsular  Button  Fas- 
tener Co. 

Can  Co.  See  American  Can 
Co. 

Can  machinery.  See  Ameri- 
can Can  Co. 

Capping  machines.  See  Crown 
Cork  &  Seal  Co. 

Carter,  W.  M.,  letter  to, 
quoted,  36. 


Cash  Register  Co.  See  Na- 
tional Cash  Register  Co. 

Chain  stores,  relation  to  black 
lists,  98,  104. 

Chalmers,  Hugh:  general 
manager  of  National  Cash 
Register  Co.,  25;  testimony 
of,  re  bogus  concerns,  26- 
27;  description  by,  of 
"knocker"  machines,  45- 
46. 

Chicago  Cash  Register  Ex- 
change, and  bogus  Watson 
Cash  Register  Co.,  28. 

Chicago,  Burlington  &  Quincy 
R.R.  Co.,  espionage  by  em- 
ployees, 155. 

Chicago,  Milwaukee  &  St. 
Paul  R.R.  Co.,  espionage  by 
employees,  155. 

Chicago  &  Northwestern  R.R. 
Co.,  espionage  by  employees, 

155. 
Cigarette  machinery,  engrossed 
by  American  Tobacco  Co., 
140-42. 

Cigarettes,  manufacture  and 
cost  of,  140.  See  also  Cig- 
arette Machinery. 

Classification,  by  trade  asso- 
ciations, 99-101. 

Clayton  Act:  sec.  3  and  Dick 
case,  66  n.;  sec.  3  and  Dick 
decision,  66  n.;  sec.  3  and 
refusals  to  sell,  112  n.;  sec. 
3  and  rebates,  118  n.;  pur- 
poses, 230;  mechanism  of 
enforcement,  230-33;  con- 
struction of  sees.  2  and  3,  n. 
235-42. 

Cleveland  Stone  Co.:  char- 
acter and  control  of  business, 
88;  exclusive  arrangements, 
88;  rebates  for  exclusive 
dealing,  116. 


A 


I 


^ 


250 


Unfair  Competition 


Index 


251 


Hi 


!)■ 


I 


Climax  Powder  Mfg.  Co.  See 
Bogus  Independent  Con- 
cerns. 

Coercion.    See  Intimidation. 

Combination,  result  of  compe- 
.  tition,     221-22.    See     also 
Electric  Lamp;  Kodak;  Na- 
val    Stores;     Photographic 
Supplies;  Thread. 

Commercial  Acetylene  Gas 
Co.  V.  Avery  Portable  Lamp 
Co.,  212  n. 

Commissioner  of  Corporations, 
Report  on  Harvester  Co. 
quoted,  n.  70-71.' 

Competition:  monopoly  the 
result  of,  217-18,  221-22; 
and  interests  of  society, 
229-30.  See  also  Competi- 
tion Theory  of  Monopoly; 
Fair  Competition;  Second- 
Hand  Cash  Register  Com- 
petition; Un&ur  Competi- 
tion. 

Competition  theory  of  mo- 
nopoly: as  stated  by  Lief- 
mann,  218^19;  presupposes 
fair  competition,  219;  ar- 
guments against,  221-29; 
and  combination,  221-22; 
represents  a  tendency,  227- 
28;  opposing  tendency, 
228. 

Conditional  requirements  (ty- 
ing clauses):  nature  and 
classification  of,  54-55; 
based  on  single  patented 
article,  56-66;  of  Electric 
Lamp  Combination,  56;  of 
Shoe  Machinery  Co.,  57-58, 
66;  on  machinery  formerly 
patented,  57-59;  effect 
where  patents  have  expired, 
57-58;  clause  of  Shoe  Ma- 
chinery Co.  quoted,  57  n.; 
of  Crown  Cork  &  Seal  Co., 
58-59;   of  Button  Fastener 


Co.,  59;  unfairness  based 
on  a  single  patent,  59-66; 
effect  of  Shoe  Machinery  Co., 
61-62;  effect  of  Crown  Cork 
&  Seal  Co.,  63-64;  based  on 
two  or  more  patents,  66-69; 
unfairness  based  on  two 
patents,  66-69;  unsound- 
ness recognized  abroad,  n. 
69-70;  based  on  predomi- 
nant control,  70-72;  full- 
line  forcing  of  Harvester  Co., 
70;  of  American  Coal  Prod- 
ucts Co.,  71-72;  of  Motion 
Picture  Patents  Co.,  72; 
unfairness  based  on  pre- 
dominant control,  72-76; 
resemblance  to  exclusive 
arrangements,  77  n.  See 
also  contents  of  chap,  iv; 
Exclusive  Arrangements. 

Conferences.  See  Steamship 
Conferences. 

Confidential  statements,  used 
by  National  Cash  Register 
Co.  for  intimidation,  188- 
89. 

Consolidation.  See  Combina- 
tion. 

Continental  Tobacco  Co.:  ex- 
clusive arrangements,  83; 
rebates  for  exclusive  dealing, 
"5. 

Continental  Wall  Paper  Co.: 
exclusive  arrangements,  83; 
rebates  for  exclusive  dealing, 
116;  engrossing  contracts 
with  Waldron  &  Son  and 
Kaukauna  Co.,  142-43. 

Continental  Wall  Paper  Co.  v. 
Lewis  Voight  &  Sons  Co., 
83  n.,  116  n.,  143  n. 

Contracts,  inducing  breach  of. 
See  Interference. 

Co-o^rative  associations,  re- 
lation to  black  lists,  99, 
104. 


Com  Products  Refining  Co.: 
agreement  with  Royal 
Baking  Powder  Co.,  30; 
operates  Stein,  Hirsh  &  Co. 
as  independent,  30-31;  re- 
bates for  exclusive  dealing, 
1 16-17;  and  returns  for 
switching  service,  135-36; 
threats  to  engage  in  compe- 
tition, 179-80. 

Coming  Glass  Works,  prefer- 
ential arrangements  with 
Lamp  Combination,  121. 

Counselman,  Lee:  testimony 
of  re  Park,  25;  testimony 
of  re  "gloom  room"  and 
"graveyard,"  185;  testi- 
mony of  re  confidential 
statements,  188-89. 

Crosby  &  Co.,  acquired  by 
American  Can  Co.,  144. 

Crown  Cork  &  Seal  Co.: 
business,  58;  controls  cap- 
ping-machine  patents,  58; 
conditional  requirements,  58- 
59;  effect  of  conditional 
requirements,  63-64. 

Cyclopedia  of  Law  and  Pro- 
cedure, definition  of  "unfair 
competition,"  2-3. 

Dailey,  W.  B.:  testimony  of, 
re  exclusive  arrangements, 
91;  testimony  of ,  re  engross- 
ing raw  paper,  150;  testi- 
mony of,  re  threats,  167. 

Deferred  rebates:  explained, 
128;  in  American  foreign 
trade,  128-29.  See  also  Re- 
bates. 

Department  stores,  relation  to 
black  lists,  104. 

Detectives:  employed  by  Na- 
tional Cash  Register  Co., 
160;  attended  National  Cash 
Register    Co.    school,    160; 


Lumber  Association  Bureau, 
161.  See  also  Espionage. 
Dick  Mimeograph  Co.,  com- 
plaint lodged  against  by 
Commission,  66  n.  See  also 
Henry  v.  Dick. 

Discriminations.   See  Rebates. 
Distribution:    confinement  to 

legitimate  channels,  98-104; 

and   classification,    98-101; 

and  recommended  lists,  loi- 

2;      effect     of     association 

methods  on,  103-4. 

Drunmiond  Tobacco  Co.,  plug 
output  in  1893,  43. 

DuPont  de  Nemours,  E.  I.,  & 
Co.    See  Powder  Trust. 

DuPont,  T.  C,  reported  ex- 
planation of  "yellow  dog" 
companies,  19-21. 

Dwyer  Machine  Co.,  engross- 
ing contract  with  Lamp 
Combination,  143. 

Eastem  States  Retail  Lumber 
Dealers'  Association,  extract 
from  report  quoted,  102. 

Eastman,  George:  suggested 
fighting  brands,  48;  admits 
fighting  brands,  49;  testi- 
mony re  Artura  paper,  iio- 
II. 

Eastman  Kodak  Co.,  fighting 
brands  of  paper,  47-50; 
engrossing  contract  with 
General  Paper  Co.,  47,  149, 
n.  149-50;  fighting  brands 
suggested,  48;  fighting- 
brand  clause,  48;  letter  re 
Kresko  pap)er,  49;  losses  on 
flighting  brands,  50;  exclu- 
sive arrangements,  83-84; 
effect  of  exclusive  arrange- 
ments, 90-91 ;  blacklisting 
through  violation  tickler, 
io5~;9>  rebates  for  exclusive 
dealing,  114;    effect  of  en- 


^•1 


252 


Unfair  Competition 


Index 


253 


I 


grossing,  150-51;  intimida- 
tion  to  enforce  exclusive  ar- 
rangements, 167-68. 

Economic  competition.  See 
Efficiency;  Fair  Competi- 
tion. 

Efficiency:  productive  and 
selling  in  relation  to  fair 
competition,  5-8;  as  a  test 
of  fairness  or  unfairness, 
7-8;  and  price-cutting,  16- 
18;  and  bogus  concerns,  39; 
and  fighting  instruments, 
52,  53;  and  conditional  re- 
quirements, 62,  68,  75 ;  and 
exclusive  arrangements,  91- 
93;  and  black  lists,  104; 
and  rebates,  137-38;  and 
engrossing,  152-53;  and  espi- 
onage, 164-65;  and  intimi- 
dation, 194;  and  interfer- 
ence, 211-12;  creation  of 
monopoly  through,  222-23; 
maintenance  of  monop>oly 
through,  223-27;  continuity, 
222-23,  227-29.  See  also 
Fair  Competition. 

E.  I.  duPont  de  Nemours  & 
Co.    See  Powder  Trust. 

Eisenstadt,  Morris,  testimony 
of,  re  threats,  169-71. 

Electric  Lamp  Combination: 
operates  bogus  Royal  Co., 
21;  conditional  require- 
ments for  lamps,  56;  prefer- 
ential arrangements,  121-22; 
engrossing  contracts  with 
Dwyer  Machine  Co.  and 
York  Electric  &  Machine 
Co.,  143- 

Electric  lamp  machineiy.  See 
Electric  Lamp  Combination. 

Electric  Renovator  Mfg.  Co., 
threatened  with  iiifringe- 
ment  suits,  178. 

EUingwood.  See  Espionage; 
Spies. 


Emerson  v.  Spaulding,  198  n. 

England,  law  against  tying 
clauses,  69  n. 

Engrossing:  machinery  of  man- 
ufacture, 139-47;  goods  used 
in  manufacturing  process, 
148-52;  envelopje  machin- 
ery by  Standard  Envelope 
Co.,  139;  cigarette  machin- 
ery by  American  Tobacco 
Co.,  140-42;  wall  paper 
machinery  by  Continental 
Wall  Paper  Co.,  142-43; 
lamp  machinery  by  Lamp 
Combination,  143;  can  ma- 
chinery by  American  Can 
Co.,  143-47;  kindling-wood 
presses  by  Standard  Wood 
Co.,  147;  photographic 
paper  by  Kodak  Co.,  148-- 
49;  effect  in  photographic 
paper,  150-51;  bauxite 
by  Aluminum  Co.,  151- 
52;  unfairness,  152-53. 
See  also  contents  of  chap, 
viii. 

Enterprise  Transportation  Co., 
attacked  by  bogus  concerns, 
34-35- 

Envelope  Co.  See  Standard 
Envelope  Co. 

Espionage:    by   railroad   em- 

Cloyees,  154-56;  forbidden 
y  I.C.C.  and  Shipping 
Board  acts,  n.  155-56;  by 
National  Cash  Register  Co., 
against  Foss  Novelty  Co., 
156-57,  Osbom,  157,  Lam- 
son,  157-58,  Hallwood,  158, 
159,  160,  American,  159-60; 
detectives  employed  by  Na- 
tional, 160;  by  lumber 
trade  associations,  161;  by 
Shoe  Machinery  Co.,  161- 
64;  unfairness,  164-65. 
See  also  contents  of  chap,  ix; 
Detectives;  Spies. 


Exclusive  arrangements:  de- 
fined, 77;  resemblance  to 
conditional  requirements, 
77  n.;  classification,  78;  use, 
78-81;  shoe  machmery  use 
clause,  78-79;  shoe  ma- 
chinery prohibitive  clause, 
79-80;  extent  of  shoe  ma- 
chinery, 80;  effect  of  shoe 
machinery,  80-81;  unfair- 
ness, 80-81,  89-96;  pur- 
chasing and  selUng,  81-91; 
distinctions  in  seUing  and 
purchasing,  81-82;  and  fac- 
tors'agreements,  82;  Ameri- 
can Tobacco  Co.,  82;  Conti- 
nental Tobacco  Co.,  83; 
Continental  Wall  Paper  Co., 
83;  National  Wall  Paper 
Co.,  83;  Eastman  Kodak 
Co.,  83-84;  Pottery  Associa- 
tion, 84-85;  Harvester  Co., 
85-86;  Bath  Tub  Trust, 
86-87;  Keystone  Watch 
Case  Co.,  87-88;  Cleveland 
Stone  Co.,  88;  effect  of 
bath-tub  and  photographic 
supplies,  89-91;  necessity 
of,  92-96;  distinguished 
from  exclusive  territory,  93- 
94;  and  new  commodities, 
93-94;  and  long-term  con- 
tracts, 95-96;  blacklisting 
to  enforce,  105-9;  black 
lists  supporting  unfair, 
109-12;  rebates  to  in- 
duce, 113-21,  127-33;  ill 
^  Eastman-General  Paper  Co., 
contract,  149,  n.  149-50; 
intimidation  to  induce 
167-72.  See  also  con- 
tents of  chap,  v;  Black 
Lists;  Intimidation:  Re- 
bates. 

Exclusive  purchasing.   See  Ex- 
clusive Arrangements. 

Exclusive  selling.    See  Exclu- 
sive Arrangements. 


Exclusive  territory,  distin- 
guished from  exclusive  sell- 
ing, etc.,  93-94. 

Exclusive  use.  See  Exclusive 
Arrangements. 

Factors'  agreements  and  ex- 
clusive arrangements,  82. 

Fair  competition:  relation  to 
unfair  competition,  5-8; 
relation  to  efficiency,  5-8; 
nature  and  operation  of,  5; 
elimination  through,  not 
unfair,  6,  18;  justification 
of,  6;  results  of,  6-7;  tested 
through  efficiency,  7-8;  and 
conditional  requirements, 
75-76;  and  exclusive  ar- 
rangements, 91-92;  and 
black  lists,  103;  and  rebates, 
131;  and  espionage,  165; 
presupposed  by  competition 
theory  of  monopoly,  219. 
See  also  Unfair  Compe- 
tition. 

Federal  Trade  Commission: 
Report  on  Fertilizer  Indus- 
try quoted,  n.  33-34;  secures 
identification  of  fertilizer 
companies,  34  n.;  com- 
plaint lodged  against  Dick 
Mimeograph  Co.,  66  n.; 
powers  and  probable  advan- 
tages, 236-44. 

Federal  Trade  Commission 
Act:  fifth  section  quoted,  1; 
fifth  section  in  trust  legis- 
lation debates,  1;  and  older 
signification  of  unfair  com- 
petition, 2-4;  primary  pur- 
pose of,  4-5;  sec.  5  and 
Dick  decision,  66  n.;  sec. 
5  and  refusals  to  sell,  112  n.; 
sec.  5  and  rebates,  118  n.; 
purposes  of,  230;  enforce- 
ment of  sec.  5,  230-33; 
construction  of  sec.  5,  n. 
235-42. 


I 


I 


{. 


m 


254 


Unfair  Competition 


Ferracute  Machine  Co.,  en- 
grossing contract  with  Amer- 
ican Can  Co.,  144. 

Fertilizer  Industry,  See 
Bogus  Independent  Con- 
cerns; Federal  Trade  Com- 
mission. 

Fighting  brands:  plug-tobacco 
war,  42-44;  "Battle  Axe," 
43;  used  by  Thread  Com- 
bination, 46-47;  Eastman 
Kodak  Co.,  47-50;  clause 
in  Eastman-Cjeneral  Paper 
contract,  48;  suggested  by 
George  Eastman,  48;  Kresko 
paper,  49;  losses  on  fighting- 
brand  photographic  papers, 
SO.  See  also  Fighting  In- 
struments; Fighting  Ships. 

Fighting  instruments:  nature 
and  purpose  of,  40;  why  un- 
fair, 50-53;  resemblance  to 
local  price-cutting,  50-52; 
resemblance  to  bc^us  inde- 
pendents, 52-53.  See  also 
contents  of  chap.  iii; 
Fighting  Brands;  Fighting 
Ships. 

Fighting  ships:  method  of 
operation,  40-41;  of  Sjmdi- 
kats-Rhederei,  41-42;  of 
Hudson  River  Navigation 
Co.,  42.  See  also  Fighting 
Brands;  Fighting  Instru- 
ments. 

Flying  squadrons,  of  Thread 
Combination,  47. 

Foss  Novelty  Co.,  spied  on  by 
National  Cash  Register  Co., 

156-57. 

Fostoria  Bulb  &  Bottle  Co., 
preferential  arrangements 
with  Lamp  Combination, 
121. 

Full-line  forcing.  See  Condi- 
tional Requirements;  In- 
ternational Harvester  Co. 


Galbraith,  organized  bogus 
Queen  City  Tobacco  Co.,  23. 

General  Aristo  Co.  See  East- 
man Kodak  Co. 

General  Bauxite  Co.,  stock 
acquired  by  Aluminum  Co., 
151- 

General  Chemical  Co.,  en- 
grossing contract  with  Alu- 
minum Co.,  151-52. 

General  Electric  Co.  See 
Electric  Lamp  Combina- 
tion. 

General  Paper  Co. :  Rives  and 
Steinbach  papers  produced 
by,  47, 149;  engrossing  con- 
tract with  Kodak  interests, 
47,  149,  n.  149-50;  fighting- 
brand  clause  in  contract 
with  Eastman  Kodak  Co., 
48;  characteristics  of  paper, 
148-49;  formed,  149.  See 
also  Eastman  Kodak  Co.; 
Fighting  Brands. 

German  Australian  Steamship 
Co.  See  Syndikats-Rhe- 
derei. 

German  East  Africa  Co.  See 
S)mdikats-Rhederei. 

German  Steamship  Co.  See 
Syndikats-RhedereL 

Gillies.    See  Spies. 

"Gloom  room."  See  Intimi- 
dation. 

Graham  Wood  Co.  v.  Standard 
Wood  Co.,  n.  147-48. 

**  Graveyard."  See  Intimida- 
tion. 

Great  Lakes  Towing  Co., 
rebates  for  exclusive  ar- 
rangements, 132-33. 

Green  Books.    See  Books. 

Greene  Mfg.  Co.,  engrossing 
contract  with  Wood  Co., 
147- 


\ 


Index 


255 


Grindstones. 
Stone  Co. 


See   Cleveland 


Hallwood  Cash  Register  Co., 
spied  on  by  Cash  Register 
Co.,  158-59,  160. 

Hamburg- American  Line.  See 
Syndikats-Rhederei. 

Hamburg — South  American 
Line.  See  Syndikats- 
Rhederei. 

Harlan  and  McCandless,  con- 
struction of  Trade  and  Clay- 
ton acts,  n.  235-42. 

Harrows.  See  National  Har- 
row Co. 

Harvester  Co.  See  Interna- 
tional Harvester  Co. 

Harvesting  machinery.  See 
International  Harvester  Co. 

Heaton  Button  Fastener  Co., 
business,  59;  conditional 
requirements,  59. 

Heaton  Peninsular  Button  Fas- 
tener Co.  V.  Dick,  59  n. 

Henry  v.  Dick:  discussed,  64- 
66;  extract,  opinion  Ch.  Jus- 
tice White,  64-65;  decision 
apparently  overruled,  66  n. 

Heyne,  CarlG.:  connection  of , 
with  Weiler  purchase,  26; 
testimony  of,  re  purchase 
and  operation  of  Weiler  Co., 
26;  testimony  of,  re  Watson 
Cash  Register  Co.,  29; 
StoUwerck  intimidated  by, 
181-82;  testimony  of,  re 
special  men,  200-201;  testi- 
mony of,  re  lawsuits,  203-4. 

Hudson  River  Navigation  Co., 
fighting  ships  of,  used 
against  Manhattan  Co.,  42. 

Infringement.    See  Patents. 

Interference:  nature  of,  195; 
with  Steel  Range  Co.  sales- 


men, 195-97;  with  Spauld- 
ing's  buggy  salesmen,  197- 
98;  breach  of  contract 
induced  by  National  Cash 
Register  Co.,  200-203;  law- 
suits, 203-6;  infringement 
suits  of  Cash  Register  Co., 
203-6;  fomenting  strikes  by 
Shoe  Machinery  Co.,  206-9; 
by  spurious  inquiries  for  lum- 
ber, 209-11;  imfaimess  of, 
211-13;  alleged  methods  in 
Bowser  case,  n.  212-13. 
See  also  contents  of  chap.  xi. 

International  Harvester  Co.: 
full-line  forcing,  70;  over- 
loading, 73;  exclusive  ar- 
rangements, 85-86;  effect 
of  anti-trust  suits  on  exclu- 
sive policy,  85-86. 

Intimidation:  character  and 
application,  166;  purposes 
of,  166-67;  supix)rting  other 
unfair  practices,  167-75; 
generally,  175-93;  to  secure 
exclusive  dealing,  167-72; 
Eastman  Kodak  Co.,  167- 
68;  Keystone  Watch  Case 
Co.,  168-71;  New  Depar- 
ture Mfg.  Co.,  171-72;  by 
lumber  associations  in  con- 
nection with  black  lists, 
172-73;  supporting  Shoe 
Machinery  conditional  re- 
quirements, 173-75;  im- 
fair,  supplementing  other 
methods,  175;  threats  of 
infringement  suits,  176-79; 
National  Harrow  Co.,  176- 
78;  Vacuum  Cleaner  Co., 
178;  unfairness  of  threats 
of  infringement  suits,  178- 
79;  threats  to  engage  in 
competition,  179-80,  190- 
91,  191  n.;  Com  Products 
Refining  Co.,  179-80;  of 
capital,  180-82;  Cash 
Register     "gloom     room" 


x 


; 


1 


Silii-iHi 


II 


Hi 


|.'!i 


^: 


256 


Unfair  Competition 


and  "graveyard,"  182-85; 
"knocker"  cash  registers, 
186-88;  Cash  Register 
"  confidential ' '  statements , 
188-89;  of  McGraw  at- 
tempted, 189-90;  Cash  Reg- 
ister threats  to  compete, 
190-91;  Shoe  Machinery 
Co.,  192-93;  unfairness 
generally,  193-94.  See  also 
contents  of  chap.  x. 

Interstate  Commerce  Act, 
espionage  forbidden  by,  n, 
155-56. 

Inventor,  theory  of  reward, 
60-61,  66-69. 

James,  Henry  F.:  definition 
of  "knocker"  machines  by, 
45 ;  testimony  of,  re  trading 
on  infringement  suits,  205-6. 

Jobbers.    See  Wholesalers. 

Jones,  Charles  H.,  testimony 
of,  re  effect  of  Shoe  Ma- 
dunery  conditional  require- 
ments, 57-58, 62. 

Joy  Line.  See  Bogus  Inde- 
pendent Concerns. 

Kaukauna  Machine  Co.,  en- 
grossing contract  with  Wall 
Paper  Co.,  142-43. 

Kellogg  elevator,  discrimina- 
tion against,  136-37. 

Kellogg  t>.  Sowerby,  137  »• 

Kelly,  John  A.,  testimony  of, 
re  effect  of  Bath  Tub  Trust, 
exclusive  arrangements,  90. 

Keystone  Watch  Case  Co.: 
exclusive  arrangements,  87- 
88;  intimidation  to  enforce 
exclusive  dealing,  168-71. 

Kindling-wood  machinery.  See 
Standard  Wood  Co. 

King's  Great  Western  Powder 
Co.,  attacked  by  local  price- 
cutting,  13-14. 


Knecht,  Ben,  158-60.  See  also 
Espionage;  Spies. 

"Knockers":  description,  45- 
46;  used  by  National  Cash 
Register  Co.  for  intimida- 
tion, 186-88.  See  also 
Fighting  Brands. 

Kodak  Co.  See  Eastman 
Kodak  Co. 

Kresko  paper.  See  Fighting 
Brands. 

Lakes  Towing  Co.  See  Great 
Lakes  Towing  Co. 

Lamp  Combination.  See  Elec- 
tric Lamp  Combination. 

Lamson  Cash  Regnister  Co.: 
spied  on  by  National,  157, 
158;  threats  to  compete 
with,  191  n. 

Lester  &  Wasley,  engrossing 
contract  with  Envelope  Co., 

139- 
Libby    Glass    Co.,    preferent 
arrangements    with    Lamp 
Combination,  121. 

License  agreements,  misnomer 
in  Bath  Tub  Trust  arrange- 
ments, 87  n. 

Liefmann,  Robert:  reference 
to  article  by,  6  n.;  quoted, 
218-19. 

Liggett  &  Myers,  plug  output 
in  1890,  43. 

Local  price-cutting:  erola- 
nation,  lo-ii;  by  Standard 
Oil  Co.,  11-13;  prices  and 
profits  compared  with  per- 
centages of  competition, 
12  n.;  by  Powder  Trust,  13- 
14;  against  King's  Great 
Western  Co.,  13-14;  against 
Birmingham  Co.,  14;  and 
National  Cash  Register  Co., 
14-15;  results  of,  16;  why 
unfair,  16-17;  argument  for, 


^ 


^ 


r 


Index 


257 


in  certain  cases,  17-18;  and 
general  price-cutting,  18; 
compared  with  bogus  con- 
cerns, 35-39;  resemblance 
to  fighting  instruments,  50- 
52.  See  also  contents  of 
chap.  i. 

Lorillard  Co.,  importance  in 
plug  business,  43. 

Luhrman  &  Wilbem,  operated 
with  bogus  Queen  City  Co., 
24. 

Lumber.  See  Black  Lists;  Es- 
pionage; Interference;  Trade 
Associations. 

Mail-order  houses,  relation  of, 
to  black  lists,  98,  99,  104. 

Malmedy.  See  Steinbach  & 
Co. 

Manhattan  Navigation  Co., 
complaint  of,  against  fight- 
ing ships,  42. 

Manhattan  Navigation  Co.  v. 
Hudson  River  Navigation 
Co.,  42  n. 

Manipulation:  Naval  Stores 
Combination,  214-15; 
American  Sugar  Refining 
Co.,  215-16;  Aluminum  Co. 
of  America,  216.  See  also 
contents  of  chap.  xii. 

Max  Ams  Machine  Co.,  en- 
grossing contracts  with  Can 
Co.,  146-47. 

McGraw,  W.  T.:  attempted 
intimidation  of,  by  Na- 
tional Cash  Register  Co., 
189-90;  testimony  of,  re 
intimidation,  190. 

Merrick,  Frank  W.,  testi- 
mony of,  re  intimidation, 
192-93. 

Metropolitan  Cash  Register 
Co.,  intimidation  of,  by 
National,  186. 


Milwaukee  Railroad.  See  Chi- 
cago, Milwaukee  &  St.  Paul 
R.R.  Co. 

Mimeographs.  See  Henry  v, 
Dick. 

Monopoly:  comp>etition  theory 
of,  217-18;  result  of  com- 
pjetition,  217-18;  problem 
in  the  United  States,  220; 
and  unfair  competition,  220- 
21;  creation  through  effi- 
ciency, 222-23;  mainte- 
nance through  efficiency, 
223-27;  opp>osing  tendency 
227-28;  and  interests  of 
society,  229-30;  in  con- 
struction of  Trade  Com- 
mission and  Clayton  acts, 
n.  235-42.  See  also  Sher- 
man Anti-trust  Act. 

Morony  Hardware  Co.  v, 
Goodwin  Pottery  Co.,  85  n., 
116  n. 

Morrison,  Frank:  testimony 
of,  re  espionage,  161-62; 
testimony  of,  re  fomenting 
strikes,  207-9.  -^^  ^^o 
Spies. 

Morrison  Photographic  Supply 
Co.,  letter  to,  re  Ejresko 
paper,  49. 

Motion  Picture  Patents  Co., 
conditional  requirements,  72. 

Motion  pictures.  See  Motion 
Picture  Patents  Co. 

Muzzy,  W.  H.,  testimony  of, 
re  National  Cash  Register 
Co.,  infringement  suits,  204. 

National  Cash  Register  Co.: 
and  local  price-cutting,  14- 
15;  bogus  concerns,  24-29; 
Universal  Cash  Register  Co., 
organized  by,  25;  Weiler 
concern  purchased  and  oper- 
ated through  Park,  26; 
Union  Computing  Machine 


Illifll'  :' 

r 


^ 


m 


258 


Unfair  Competition 


Co.  purchased  and  operated 
through  Park,  26-27;  bogus 
Watson  Co.  operated  to 
meet  second-hand  competi- 
tion, 28-29;  "knocker"  ma- 
chines, 45-46;  spying  of,  on 
Foss  Novelty  Co.,  156-57, 
Lamson  Co.,  157-58,  Osbom 
Co.,  157,  Hallwood  Co., 
158-59,  160,  American  Co., 
159-60;  intimidation  of 
capital,  180-82;  "gloom 
room"  and  "graveyard," 
182-85;  intimidation  by 
"knockers,"  186-88;  "con- 
fidential statements"  to  in- 
timidate, 188-89;  intimida- 
tion of  McGraw  attempted 
by,  189-90;  interference  by 
inducing  breach  of  contract, 
200-203;  interference  by  in- 
fringement suits,  203-6. 

National  Electric  Lamp  Co. 
See  Electric  Lamp  Combi- 
nation. 

National  Harrow  Co.,  threats, 
176-78. 

National  Wall  Paper  Co.,  ex- 
clusive arrangements,  83. 

Naval  Stores  Combination, 
manipulation  of  turpentine 
market,  214-15. 

Naval  Stores  Export  Co., 
eliminated  by  manipulation, 
214-15. 

Nelson,  Otto.  See  Espionage; 
Spies. 

Neptune  Line.  See  Bogus 
Bidependent  Concerns. 

New  Departure  Mfg.  Co., 
intimidation  to  secure  ex- 
clusive arrangements,  171- 
72. 

New  York  Cash  Register  Ex- 
change, bought  out  by 
Watson,  29. 


New  York,  New  Haven  & 
Hartford  R.R.  Co.,  bogus 
concerns  operated  by,  34- 

35- 
New  York  Powder  Co.    See 
Bogus     Independent    Con- 
cerns. 

New  Zealand:  provisions 
against  tying  clauses,  70  n.; 
law  limiting  selection  of  cus- 
tomers, T12  n.;  laws  regard- 
ing rebates,  n.  1 17-18. 

Nims,  H.  D.,  reference  to 
views  of,  3  n. 

Northwestern  Railroad.  See 
Chicago  &  Northwestern 
R.R.  Co. 

Norton  Bros.,  acquired  by 
American  Can  Co.,  144. 

Norton  Chemical  Co.,  engross- 
ing contract  with  Aluminum 
Co.,  152. 

Oil,  rebates  by  transportation 
companies,  134-35.  See  also 
Standard  Oil  Co. 

Osbom  Cash  Register  Co.: 
spied  on  by  National  Cash 
Register  Co.,  157;  intimi- 
dation by  National  Cash 
Register  Co.,  187-88. 

Osbom,  F.  C,  testimony  of, 
re  intimidation,  187-88. 

Overloading:  by  Harvester 
Co.,  73;  resemblance  of,  to 
exclusive  dealing,  73. 

Park,  Edgar  E.:  relations  of, 
to  National  Cash  Register 
Co.,  24-25;  organization  of 
the  Universal  suggested  by, 
25;  bogus  Weiler  concern 
operated  by,  26;  bogus 
Union  Co.,  operated  by,  26- 
27;  and  Potin  competition, 
180-82. 


Index 


2S9 


Patents:  on  carbon-filament 
lamps,  56;  of  Crown  Cork 
&  Seal  Co.,  58-59;  theory 
underlying  grant  of,  60-61; 
and  Dick  decision,  64-66; 
Ch.  Justice  White  on,  in 
Dick  case,  64-65;  theory, 
inventor's  reward,  66-69; 
validity  of  negative  film, 
n.  72-73;  threats  of  in- 
fringement suits,  176-78; 
unfairness  of  threats  of  suit, 
178-79;  Cash  Register  Co. 
infringement  suits,  203-6; 
trading  on  infringement 
suits,  203-6. 

Patterson,  John  H.,  attempt 
of,  to  intimidate  McGraw, 
190. 

Patterson  (R.  A.)  Tobacco  Co. 
See  Bogus  Lidependent  Con- 
cerns. 

Patterson,  Robert,  testimony 
of,  re  special  men,  199. 

Patterson  v.  U.S.,  25  n.,  26  n., 
27  n.,  46  n.,  185  n.,  187  n., 
188  n.,  190  n.,  199  n.,  200  n. 

Pennsylvania  Railroad,  espi- 
onage by  employees  of,  155. 

Pennsylvania  Sugar  Refining 
Co.,  suppressed  by  American 
Sugar  Refining  Co.,  215-16. 

Petroleum.    See  Oil;  Standard 

oaco. 

Phoenix  Glass  Co.,  preferences 
to  Lamp  Combination,  121- 
22. 

Photographic  papers:  fighting 
brands  suggested  by  East- 
man, 48;  instructions  re- 
garding "  Kresko,"  49;  black- 
listing "Artura,"  106-9; 
gas  light,  109;  early  charac- 
ter and  requirements,  148; 
Rives  and  Steinbach  papers, 
149;  importance  of  imported, 


149.    See  also  Artura ;  Fight- 
ing Brands. 

Photographic  supplies.  See 
Eastman  ^odak  Co. 

Pierce,  Dr.,  intimidation  of, 
by  National  Cash  Register 
Co.,  186, 

Pinkerton  detectives.  See  De- 
tectives. 

Pitch.  See  American  Coal 
Products  Co. 

Plant,  Thomas  G.:  espionage 
against,  161-64;  complete 
line  of  shoe  machinery  per- 
fected by,  206. 

Plug  tobacco:  war,  42-44; 
"Battle  Axe,"  43;  output 
of  various  companies,  43; 
increase  of  control  by  Ameri- 
can Tobacco  Co.,  43-44; 
losses  by  American  Tobacco 
Co.,  44. 

Potin,  Julian,  and  operations  of 
Park,  180-82. 

Pottery  Association:  exclu- 
sive arrangements,  84-85; 
rebates  for  exclusive  dealing, 
116. 

Powder  Trust:  local  price- 
cutting,  13-14;  "yellow 
dog"  companies,  19-21. 

Preferential  arrangements.  See 
Rebates. 

Price-cutting.  5ec  Local  Price- 
Cutting. 

Providence  Gas  Burner  Co., 
preferential  arrangements 
with  Lamp  Combination, 
122. 

Puttman,  Paul,  fighting  brands 
suggested  to,  48. 

Queen  City  Tobacco  Co.  See 
Bogus  Independent  Con- 
cerns. 


\  ' 


■  I|.;>li!l 


i 


M 


260 


Unfair  Competition 


Railroads:  tap-line  and  switch- 
ing services  as  rebates,  135- 
36;  espionage  by  employees, 
154-55. 

Ranges.  See  St  Louis  Steel 
Range  Co. 

Rebates:  to  enforce  exclusive 
arrangements,  113-33;  by 
manufacturing  and  trading 
companies,  113-27;  Ameri- 
can Tobacco  Co.,  113;  East- 
man Kodak  Co.,  114;  Bath 
Tub  Trust,  1 14-15;  Conti- 
nentalTobaccoCo.,  ii5;Con- 
tinental  Wall  Paper  Co.,ii6; 
Pottery  Association,  116; 
Cleveland  Stone  Co., 
116;  Com  Products  Re- 
fining Co.,  1 1 6-1 7;  Austra- 
lian and  New  Zealand  laws, 
n.  1 17-18:  and  Trade  Com- 
mission Act,  X18  n.;  and 
Clayton  Act,  118  n.;  un- 
fairness supporting  exclusive 
arrangements,  11 7-21;  and 
refusal  to  sell,  1 19-21;  pref- 
erential arrangements  with 
Lamp  Combination,  121-22; 
preferential  arrangements 
with  American  Can  Co. ,  1 2  2- 
33;  double  imfaimess  in 
lamp  and  can  preferential 
arrangements,  123-27;  size 
of  can  rebates,  125-26;  by 
transportation  companies, 
127-37;  steamship  deferred 
for  exclusive  arrangements, 
127-33;  unfairness  of  steam- 
ship deferred,  1 29-3 1 ;  Lakes 
Towing  Co.  for  exclusive 
dealing,  132-33;  by  rail- 
road companies,  133-37;  in 
oil  transportation,  134- 
35;  switching  and  tap-line 
services  as,  135-36;  on 
grain  shipments,  136-37; 
general  unfairness,  137-38. 
See  also    contents  of  chap. 


vii;      Exclusive     Arrange- 
ments. 

Rebating.    See  Rebates. 

Recommended  lists,  used  by 
trade  associations,  101-2. 
See  also  Black  Lists. 

Red  Books.    See  Books. 

Refusals  to  sell:  for  failure  to 
deal  exclusively,  105-12; 
in  Australia  and  New  Zea- 
land, 112  n.;  and  Trade 
Commission  Act,  112  n.; 
and  Clayton  Act,  112  n.; 
right  not  lessened  by  rebates, 
119-21. 

Restraint  of  trade,  in  con- 
struction of  Trade  Com- 
mission and  Clayton  acts, 
n.  235-42.  See  also  Sherman 
Anti-trust  Act 

Retailers:  efforts  of,  to  pro- 
tect themselves,  97-99; 
place  in  distribution,  103- 
5.  See  also  Trade  Associa- 
tions. 

Rives.  See  Blanchet  Fr&res  & 
Kleber. 

Robbins  Press  Works,  ac- 
quired by  American  Can  Co., 
144. 

Roberts,  Jackson,  quoted  by 
Stone  on  effect  of  shoe 
machinery  exclusive  arrange- 
ments, 80-81. 

Roofing  felt.  See  American 
Coal  Products  Co. 

Royal  Baking  Powder  Co.: 
Western  Glucose  Co.  ac- 
quired by,  29-30;  agree- 
ment with  Com  Products 
Co.,  30;  threatened  with 
competition,  179-80. 

Royal  Incandescent  Lamp 
Co.  See  Bogus  Independent 
Concerns;  Electric  Lamp 
Combination. 


Index 


261 


St.  Louis  Steel  Range  Co., 
interfered  with  by  Wrought 
Iron  Range  Co.,  195-97. 

St.  Louis  Steel  Range  Co.  v. 
Wrought  Iron  Range  Co., 
197  n. 

Sarason  v.  Fr6nay,  70  n. 

Second-hand  cash-register  com- 
petition, 28. 

Section  5  of  Federal  Trade  Com- 
mission Act.  See  Federal 
Trade  Commission  Act. 

Selection  of  cutomers,  1 11-12; 
limitation  in  Australia  and 
New  Zealand,  112  n. 

Services  to  be  rendered,  202  n. 

Sherman  Anti-trust  Act,  and 
unfair  competition,  233-35. 

Shipping.  See  Steamship  Con- 
ferences. 

Shipping  Board  Act,  espion- 
age forbidden  by,  n.  155- 
56. 

Shipping  ring.  See  Steam- 
ship Conferences. 

Shoe  Machinery  Co.  See 
United  Shoe  Machinery  Co. 

Sleeper  Machine  Co.,  acquired 
by  Can  Co.,  144. 

Sochat,  Abram:  testimony  of, 
re  Shoe  Machinery  espion- 
age, 162-64.    See  also  Spies. 

Southern  Cash  Register  Co., 
and  Watson  Cash  Register 
Co.,  29. 

Spaulding,  buggy  salesmen 
interfered  with,  197^98. 

Special  men:  character  and 
duties,  198-200;  inducing 
breach  of  contracts,  200- 
203. 

Spies:  railroad  employees, 
154-55;  Ellingwood,  156- 
57;  Gillies,  157;  Nelson, 
157-58;     Knecht,    158-60; 


detectives,  160-61;  Morri- 
son, 161-62;  Sochat,  Abram, 
162-64.  See  also  Espion- 
age. 

Sprague  Canning  Machinery 
Co.,  acquired  by  American 
Can  Co.,  144. 

Standard  Envelope  Co.,  char- 
acter, 139  n.;  engrossing 
contract  with  Lester  &  Was- 
ley,  139. 

Standard  Oil  Co.,  local  price- 
cutting,  11-13;  prices, 
profits,  and  percentages  of 
competition  under  local 
price-cutting,  12  n.;  char- 
acter and  number  of  bogus 
concerns,  21-22. 

Standard  Oil  Co.  v.  U.S.,  12  n., 
22  n. 

Standard  Wood  Co.,  engrossing 
contract  with  Greene  Mfg. 
Co.,  147. 

State  V.  Standard  Oil  Co.,  11  n. 

State  V.  National  Cash  Register 
Co.,  15  n.,  25  n.,  26  n.,  28  n., 
29  n.,  45  n.,  156  n.,  157  n., 
158  n.,  159  n.,  160  n.,  161  n., 
182  n.,  183  n.,  184  n.,  185  n., 
188  n.,  189  n.,  191  n.,  198  n., 
199  n.,  201  n.,  203  n.,  204  n., 
205  n.,  206  n. 

Steamship  conferences,  defini- 
tion, character,  and  purposes, 
n.  127-28. 

Steel  Range  Co.  See  St. 
Louis  Steel  Range  Co. 

Stein,  Hirsh  &  Co.  See  Bogus 
Independent  Concerns. 

Steinbach  &  Co.:  photographic 
paper  produced  by,  at  Mal- 
m^y,  149;  combination  to 
form  General  Paper  Co.,  149. 
See  also  General  Paper  Co. 

Stevens,  W.  H.  S.,  reference 
to  writings  of,  2  n.,  12  n., 


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262 


Unfair  Competition 


13  n.,  58  n.,  129  n.,  139  n., 
233  n»  235  n. 
Stollwerckj  intimidated,  181- 
82. 

Stone,  Alex.,  Jackson  Roberts 
quoted  by,  on  effect  of  shoe 
machinery  exclusive  ar- 
rangements, 80-81. 

Sugar.  See  American  Sugar 
Refining  Co. 

Swift  &  Co.,  no  bogus  ferti- 
lizer  concerns  owned  by,  33. 

Switching  services  as  rebates, 
135-36. 

Syndikats-Rhederei,  character, 
membership,  and  purpose, 
41.  See  also  Fighting 
Ships. 

Taggart,  Rush:  relations  with 
Park,  27;  testimony  of,  re 
Union  purchase  ,27. 

Tap  lines,  services  as  rebates, 
135-36. 

Thread  Combination,  fighting 
brands,  46-47;  flying  squad- 
rons, 47. 

Threats.    See  Intimidation. 

Tin  plate.  See  American  Tin 
Plate  Co. 

Tobacco:  See  American  To- 
bacco Co.;  Cigarettes;  Con- 
tinental Tobacco  Co.;  Plug 
Tobacco. 

Toledo  Scales  &  Cash  Register 
Co.,  intimidation  by  Na- 
tional, 187. 

Trade  Act.  See  Federal 
Trade  Commission  Act. 

Trade  associations,  wholesale 
and  retail:  and  distribu- 
tion, 98-104;  purpose  of 
black  lists  and  boycotts, 
98-99;  classification,  99-101; 
reconmiended    lists,   101-2; 


unfairness  of  black  list ,  1 03-5 ; 
espionage  to  assist  blacklist- 
ing by  lumber,  161 ;  intimida- 
tion by  lumber,  172-73; 
spurious  inquiries  in  lumber 
trade,  209-11. 

Trade  Commission.  See  Fed- 
eral Trade  Commission. 

Trade  Comission  Act.  See 
Federal  Trade  Commission 
Act. 

Trusts.  See  Bath  Tub  Trust; 
Powder  Trust. 

Tuckhom  &  Co.,  and  bogus 
Watson  Cash  Register  Co., 
28. 

Turpentine.  See  Naval  Stores 
Combination. 

Tying     clauses.    See    Condi- 
tional Requirements. 

Uneconomic  competition.  See 
Unfair  Competition. 

Unfair  competition:  declared 
unlawful,  i;  difficult  to 
define,  i ;  defined  as  passing 
off,  2-3;  older  legal  signifi- 
cation, 2-4;  older  significa- 
tion and  Trade  Act,  4; 
purpose  of  new  laws  against, 
4,  230;  determined  by  refer- 
ence to  fair  competition, 
5^;  tested  through  effi- 
ciency, 7-8;  classification  of 
methods,  9;  local  price- 
cutting,  16-17;  bogus  inde- 
pendent concerns,  35-39; 
fighting  instruments,  50-53; 
conditional  requirements,  59- 
66,  66-69,  72-76;  exclusive 
arrangements,  80-81,  89-96; 
black  lists,  103-5,  109-12; 
rebates  and  preferences,  117- 
21,  123-27,  129-31,  137-38; 
engrossing,  150,  152-53; 
espionage,  164-65;  intimi- 
dation,   175,    179,    193-94; 


Index 


263 


interference,  211-13;  neces- 
sity of  elimination,  220, 
221,  228,  229-30;  and  Sher- 
man Anti-trust  Act,  233-35; 
advantages  of  preventing 
by  Conmiission,  236-44;  as 
cause  of  monopoly,  220-21. 
See  also  various  chapter 
headings. 

Unfair  methods  of  competition. 
See  Unfair  Competition. 

Unfair  practices.  See  Unfair 
Competition. 

Union  Cash  Register  Co.  See 
Union  Computing  Machine 
Co. 

Union  Computing  Machine 
Co.,  intimidation  of,  by 
National  Cash  Register  Co., 
187.  See  also  Bogus  Inde- 
pendent Concerns. 

Union  Lock  Stitch  Co.,  in- 
timidation of  owners  at- 
tempted by  Shoe  Machinery 
Co.,  192-93. 

Union  Pacific  Railroad,  espi- 
onage by  employees,  155. 

Union  Stock  Yards  Can  Co. 
See  Bogus  Independent 
Concerns. 

United  Shoe  Machinery  Co., 
conditional  requirements  on 
machines  formerly  patented 
and  their  effect,  57-58; 
typical  tying  clause  quoted, 
57  n.;  effect  of  conditional 
requirements,  61-62;  condi- 
tional requirements  based 
on  two  or  more  patents,  66- 
69;  exclusive  arrangements, 
78-81;  exclusive-use  clause, 
78-79;  prohibitive  clause, 
79-80;  extent  of  exclusive 
arrangements,  80;  effect  of 
exclusive  arrangements,  80- 
81;  espionage  of  Plant  fac- 
tory   161-64;    intimidation 


supporting  conditional  re- 
quirements, 173-75;  intimi- 
dation, 192-93;  interference 
by  fomenting  a  strike,  206-9. 

United  States  Steel  Corpora- 
tion, minutes  on  tin-plate 
contract,  122. 

United  States  Transportation 
Co.  See  Bogus  Independ- 
ent Concerns. 

U.S.  V.  Aluminum  Co.  of 
America,  151  n.,  152  n.,  216  n. 

U.S.  V.  American  Can  Co., 
32  n.,  123  n.,  124  n.,  145  n., 
147  n. 

U.S.  V.  American  Coal  Prod- 
ucts Co.,  n.  15-16,  71  n. 

U.S.  V.  American  Naval  Stores 
Co.,  214  n. 

U.S.  V.  American  Sugar  Re- 
fining Co.,  16  n.,  31  n.,  215  n., 
216  n. 

U.S.  V.  American  Thread  Co., 

47  n. 

U.S.  V.  American  Tobacco  Co., 
22  n.,  23  n.,  24  n.,  37  n. 

U.S.  V.  S.  F.  Bowser,  164  n., 
193  n.,  203  n.,  212  n. 

U.S.  V.  Central  West  Publish- 
ing Co.,  33  n.,  203  n. 

U.S.  V.  Cleveland  Stone  Co., 
88  n.,  116  n. 

U.S.  V.  Colorado  &  Wyoniing 
Lumber  Dealers*  Association, 
99  n. 

U.S.  V.  Com  Products  Refining 
Co.,  3in.,ii7n.,i36n.,i8on. 

U.S.  V.  Eastern  States  Retail 
Lumber  Dealers'  Associa- 
tion, 98  n.,  100  n.,  102  n., 
103  n. 

U.S.  V.  Eastman  Kodak  Co., 

48  n.,  49  n.,  50  n.,  84  n., 
109  n.,  no  n..  Ill  n.,  120 n., 
121  n.,  149  n.,  150  n.,  151  n. 


I 


i     I 


264 


Unfair  Competition 


Index 


265 


>:• 


I 


"' •  ( 


U.S.  V.  E.  I.  diiPont  de  Ne- 
mours &  Co.,  14  n.,  21  n. 

U.S.  V.  General  Electric  Co., 
21  n.,  56  n.,  60  n.,  122  n., 
14311. 

U.  S.  V.  Edward  E.  Hartwick, 
icon. 

U.  S.  V.  Willard  G.  HoUis, 
103  Q.,  161  n.,  171  n.,  172  n., 
210  n.,  211  n. 

U.S.  V.  International  Harvester 
Co.,  70  n.,  71  n.,  86  n.,  227  n. 

U.S.  V.  Keystone  Watch  Case 
Co.,  88  n.,  169  n.,  171  n. 

U.S.  V.  Master  Horseshoers' 
National  Protective  Asso- 
ciation of  America,  103  n. 

U.S.  V.  Motion  Picture  Patents 

Co.,  72  n. 
U.S.  V.  New  Departure  Mfg. 

Co.,  172  n. 

U.S.  V.  New  York,  New  Haven 
&  Hartford  Railroad  Co., 

35  n. 
U.S.  V.  Pacific  Coast  Plimibing 

Supply  Association,  100  n., 

103  n. 
U.S.    V.  Philadelphia  Jobbing 

Confectioners'    Association, 

103  n. 
U.S.    V.   Southern  Wholesale 

Grocers'  Association,  100  n., 

103  n. 
U.S.     V.    Standard    Sanitary 

Mfg.  Co.,  87  n.,  89  n.,  90  n., 

115  n. 
U.S.   V.  Standard  Wood  Co., 

147  n. 
U.S.  t».  United  Shoe  Machinery 

Co.,  79  n.,  80  n.,  81  n.,  161  n., 

164  n.,  193  n.,  209  n. 
U.S.   V.  United    States  Steel 

Corporation,  224  n.,  225  n. 

Universal  Cash  Register  Co. 
See  Bogus  Independent 
Concerns. 


Vacuiun  Cleaner  Co.,  infringe- 
ment suits  threatened  by, 
178. 

Waldron,  John  &  Son,  en- 
grossing contract  with  Wall 
Paper  Co.,  142-43. 

Wall  paper.  See  Continental 
WaU  Paper  Co.;  National 
Wall  Paper  Co. 

Wall  paper  machinery.  See 
Continental  Wall  Paper  Co. 

Ware-Kramer  Co.,  and  bogus 
independents,  36-37. 

Warren,  J.  E.,  testimony  of, 
re  espionage,  157-58;  testi- 
mony of,  re  "graveyard" 
and  "gloom  room,"  182- 
85;  testimony  of,  re  indu- 
cing breach  of  contract, 
201-3. 

Watchcases.  See  Keystone 
Watch  Case  Co. 

Waters-Pierce  Oil  Co.,  11. 

Watson  Cash  Register  Co. 
See  Bogus  Independent 
Concerns. 

Watson,  T.  J.,  Watson  Cash 
Register  Co.  organized  by, 
for  National,  28;  second- 
hand bogus  independents 
operated  by,  28-29;  New 
York  Register  Exchange  and 
Atlanta  Register  Co.,  bought 
by,  29. 

Weiler  Cash  Register  Co. 
See  Bogus  Independent 
Concerns. 

Wells-Whitehead  Tobacco  Co., 
information  regarding  inde- 
pendent shipments,  36.  See 
also  Bogus  Independent 
Concerns. 

Western  Elevator  Association 
and  transportation  discrimi 
nation,  136-37. 


Western  Glucose  Co.,  acquired 
by  Royal  Baking  Powder 
Co.,  29.  See  also  American 
Maize  Products  Co. 

White,  Chief  Justice,  quota- 
tion from  opinion  Henry  v. 
Dick,  64-75. 

White  Books.    See  Books. 

White  Lists.  See  Black 
Lists. 

Whiteside,  Alexander,  testi- 
mony of,  re  effect  of  Crown 
Cork  &  Seal  Co.,  conditional 
requirements,  63. 

Whitwell  v.  Continental  To- 
bacco Co.,  3  n.,  115  n,,  234  n. 

Wholesalers:  efforts  of,  to 
protect   themselves,   97-99; 


place  in  distribution,  103-5. 
See  Trade  Associations. 
Wilhoit,  E.  M.,  testimony  of, 
re    local    price-cutting    by 
Standard  Oil  Co.,  11. 

Woerman,  C.  5ce  Syndikats- 
Rhederei. 

Wood  Co.  See  Standard 
Wood  Co. 

Wrought  Iron  Range  Co., 
interference  of,  with  Steel 
Range  Co.  salesmen,  195-97. 

"Yellow  Dog"  companies. 
See  Powder  Trust. 

York  Electric  &  Machine  Co., 
engrossing  contract  with 
Lamp  Combination,  143. 


^UN  13  1921 


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